Health Care and Economy and Education & Workforce Development and Government

ECONOMIC ANALYSIS: Understanding factors in public-sector job growth

January 24, 2005

There is nothing like a war and a recession to increase the size of government payrolls.

Yet the hiring behavior of the public sector in the last four years has been unusual, when compared with previous recessions. The data tell us much of the growth in recent years has come from state and local governments. But they do not tell us why.

There has been much stronger job growth in the public sector than in the private sector in the years since the 2001 recession, both in Indiana and in the national economy. Although its growth has abated slightly since 2003, public-sector employment roared ahead at the same time the trough of the recession was wiping out more than 2 million jobs in the private sector. As a result, more than one in every six workers in the non-farm economy today is a public employee.

Given the heady increases in spending by Congress and the significant expansion in federal employees associated with the screening activities at airports, it is tempting to conclude that deficit spending in Washington lies behind the government hiring spree.

During the early stages of the recession at least, it turns out to be just the opposite. Between March and November of 2001, the official beginning and end dates of the recession, public-sector employment nationally increased by about 393,000 jobs. All but 2,000 of that increase can be attributed to hiring by state and local governments.

In 2001, just 15 of Indiana's 92 counties managed to produce private-sector employment growth. The hardest-hit areas lost as much as 15 percent of their private-sector job base in that one year alone, with 13 counties losing at least 7 percent of their private-sector jobs.

Yet in that same year, 57 counties in Indiana managed to grow their public payrolls. Indeed, out of the 13 counties with the worst-performing private sectors in 2001, all but four had increases in public sector employment in that same year. The pattern is revisited in the majority of counties throughout the state-stagnant or declining private-sector employment with an upward trend in government employment.

Some of this may be an accident of timing. Budgets that set government employment levels in 2001 were largely drawn up in 2000, when forecasts for the economy and tax collections may have called for growth. This explanation is buttressed by the fact that public-sector employment nationally has been flat in 2003 and 2004.

But the unusual strength in government hiring just as the recession was coming on, continuing into 2002, is sharply different from the previous recession of 1991. As that recession broke, governments cut public payrolls by 72,000 jobs nationally, compared with the 393,000 government jobs created in 2001.

Why did public payrolls grow at the same time those in the private sector shrank? The reasons vary by level of government involved. Certainly in times of economic disruption, public-sector jobs become more attractive. And thanks to deficit spending, rainy day funds and the relative stability of property tax revenue, those demands can be partially accommodated by the public sector. And the increased burden on transfer programs, government-sponsored education and health care in times of economic hardship translate into an increased demand for public workers.

Another explanation, however, must be found in the demands on the public sector that run independent of the state of the economy. Our courts and correctional systems, not to mention educational institutions and public hospitals, are beset with rapidly rising demand. Given the high labor needs of these organizations, that situation promises to put pressure on public payrolls to grow for the foreseeable future as well.



Barkey is an economist and director of economic and policy studies at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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