Monday, November 29, 2010

On the Safety of Government Work....

(Ironic timing alert - I wrote this post before hearing about the Obama pay freeze for federal workers this afternoon... should help close the gap between federal and private worker pay in about 25 years; average hourly pay for country as whole in monthly jobs data is in the mid $18s aka $37K) [USA Today Nov 10th - More Federal Workers' Pay Tops $150,000]

I'm beginning to read much more in the mainstream media about the structural changes occurring in the workforce, which I highlighted in 2007.  [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]  While we can discuss the impact of growing income inequality and the disassociation between private and public sector wages / benefits, as the unions last refuge in the country is the public sector, that is a discussion for other days.  What I wanted to focus on today was the safety (relative) of government work; by safety I mean job security.  I was reading a Bloomberg piece more related to potential defaults of municipalities when I saw some fascinating statistics so I did further digging in terms of complexion of the U.S. workforce and how the different tracts of employees have fared in this recession.  In a limited scope of time I was not able to dig through the BLS website to find the appropriate report(s) so instead I'll cite a few articles/studies which more or less reach very similar figures.

First the complexion of the U.S workforce after the recession (current)

Total nonfarm payrolls: 130.2M

Private: 108.0M (83%)
Public - Federal:  2.84M (2.2%)
Public - State:  5.14M (3.9%)
Public - Local:  14.32M (11.0%)

The state and local figures can be broken down into (a) non education and (b) education but for current purposes there is no need.


Public sector work will always lag behind private sector in terms of timing of reductions because until revenue drops (due to lower tax receipts in the private sector) there will be no reason to right size.  Via these different papers and articles we can measure the depths of the labor force change in all 4 subsectors above versus peak employment.  In the private sector peak employment was December 2007.  In the state and local government it was August 2008 (example of the 'lag' I spoke of above).  In the federal government?  Well excluding the effects of the temporary census worker there was no peak in this niche... employment shows constant growth.  This is the one bulletproof sector of the economy - no mass layoffs, no right sizing, endless ability to deficit spend, no salary givebacks, no benefits reductions, etc.

Long time readers will recall I've said in many pieces to send your kids into government work; the old contract was in return for security of public work (which this piece demonstrates still holds true) you receive a lower than market level of pay and benefits.  That contract has been ripped apart by globalization - the private sector has been traumatized while most public work continues pay/benefits in its own cocoon.  Indeed, the pay is now on par or better than the private sector; benefits are equal or better in many cases (this depends in part in which arm of government you are in), and the largest advantage of public work in our new and volatile globalized economy is the safety factor - job security.  Here there is no comparison, nor argument - and finally we have the numbers to prove it.  But of course there is even a pecking order in government - and it's basically top down.
  1. Federal
  2. State
  3. Local
In sum, the farther you are from the local taxpayer the safer you are.  And the better your pay, and benefits.  Indeed things are so out of whack at the federal level that the average worker in this niche of society has BENEFITS that now approach the average WAGE in the private sector.  [Aug 11, 2010: Federal Workers Benefits Now Approaching Parity with Wages in the Private Sector]   One really should think about that previous statement before they jump to the rest of the piece.

In essence the government in sum - and especially at the federal level and to lesser degree state - is being run not unlike the auto manufacturers with out of line (versus 'the new paradigm private market') wage and benefits, with one caveat. [Jan 24, 2010: For the First Time, More Union Workers Work in Government versus Private Sector   An endless ability create more revenue via taxing the populace and/or deficit borrowing - hence no moment of truth or wall to hit like the auto companies eventually did.  [Mar 11, 2010: America's 3 Wealthiest Counties Now Ring Washington D.C.]  But let's not digress too much re: pay/benefits... how does the job security factor measure up amongst these 4 groups?

We have to exclude the federal government worker which never had a reduction in workforce - this is the prime group to be in, in modern America (outside the financial oligarchy or CEO class of course).  Employment is UP 3.2% since the peak of private sector employment in December 07....i.e. during the worst recession since the Great Depression, federal government added jobs.  So let's look at the other 3 groups.

Private sector drop at lowest level versus peak employment (December 07): -7.3%
Public - Local drop at lowest level versus peak employment (August 08):  -2.4%
Public - State drop at lowest level versus peak employment (August 08): -0.7% to -1.2%* 

*I have 2 sources of data telling slightly different stories on the state numbers.

Again the same trends we see in pay and benefits show up in the job safety.  The farther you are from the actual taxpayer the safer your job.  Ironic.   And ANY job in the public sector is far more safe than the private sector.  At the trough level, about 1 in every 12.5 jobs in the private sector was erased from the economy.   In the worst off public subsector (local) it is roughly 1 in 40.  At the state level closer to 1 in 90 jobs was/is threatened.  No comparison.  To repeat, this used to be fine when the pay and benefits lagged the private sector - it was a trade off.  Now all the pros are in the public sector.   Greece like.


Let's be clear as the lagging sector, public employment has yet to bottom out and could (should) regress from here versus peak employment.  But the stimuli sent from federal government the past 2-3 years has helped to contain job losses - the big question here is will a GOP/Tea Party growth in power allow for continued state (and to lesser degree municipal) backdoor bailouts in the next year or three?  We'll see.  But this is interesting data that I had not seen before and bears out my message to readers and their college or high school aged children.  Get into government work, this is what our system encourages despite talk of 'free market capitalism' and 'private business is #1' and nonsense of that type - the incentive system says "Be like France".  Further, the higher up the food chain (federal...then state... then municipal) the better.  One day the 'ponzi' ends as not enough of the private sector will be around to support the public but based on the action of the past 3 years, that's where the Fed comes in to buy ever more amounts of debt the Treasury issues as we all watch in wonderment at the American miracle.  At 17% of labor force in public sector we still are well behind the Greeks and Portuguese!  As for us remaining suckers in the private sector?  We have to await the next big bubble Greenspan Bernanke creates - whether overseas or here, although each iteration of the central banker bubbles are creating less and less jobs.  And the bursting bubbles are not so fun either, but hey beggers can't be choosers - just another reason to avoid the private sector workforce in Americe.

Sometimes pictures are worth a thousand words:

Where would a sensible person want to be, even assuming pay and benefits were equal? 

[click to enlarge]

In sum, this is "the system", not an opinion piece.  We can complain about the system but it is not changing, especially with the reserve currency (hence the ability to spend like teenagers without any oversight) and more and more of our private sector outsourced overseas, and replaced by what I call the pseudo public sector (healthcare and education).   This is where ALL the job growth has been the past decade.   Which is in itself a ponzi as it requires taxable income to subsidize schools, Medicare, and the like.

(this chart is a year old - I am sure it even more skewed now)

Frankly, aside from those who are successful in small business or reach high levels of private finance and similar white collar work, the public sector (and pseudo public) appears to be the last great place to build a upper middle class existence.

[As an aside, we have another bubble forming in higher education - i.e. our university system.  If you can believe it the rise in tuition the past 10-15 years is actually outpacing that of healthcare.  It is just not as highly publicized but you can see the total non reaction in state education employment - chart below -  during the Great Recession as evidence of a market based system out of whack.  Please note healthcare and higher education are our 2 most subsidized expenditures - and both have the highest rates of inflation that are completely disassociated with organic wage growth of the average American.  Wages rising 2-3% but tuition and healthcare 8-12% annual? Coincidence?  I think not.  Another ponzi.  Maybe President Jeb Bush will freeze tuition at $62,000 a year for undergrad at your local state college circa 2019.]

[click to enlarge]

Source data:
Bloomberg - Default is Dirty Word to America's Willing and Able
Barron's - Job Losses No Private Affair
Rockefeller Institute of Government - Cuts in Local Government Employment Accelerated Sharply in September.

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