Government wage growth lags private sector by widest margin on record

When recruiters at the Minnesota Department of Justice tried to fill hundreds of vacancies last year, they noticed some big pay gaps compared to private sector jobs. Despite a 2.5% pay rise for much of the department’s unionized workforce this summer, the starting hourly rate for law enforcement officers was still almost $9 below what FedEx was offering.

Unable to compete with the higher wages, civil servants responded with significant hiring incentives. The prisons in other federal states have done the same. Such predicaments have proven to be common among state and local agencies as they face severe staffing shortages.

Nationally, wage increases for state and local government employees have not kept pace with those of private employees, who generally made much stronger gains as the economy recovered. A Pew analysis of Labor Department data shows that in each of the last four quarters, the annual growth rate in hourly wages and wages in the private sector has exceeded that of state and local governments by the largest on record. To make matters worse, public sector wages have not kept pace with high inflation. Concerns about pay have exacerbated an already difficult situation for governments in recruiting and retaining staff, putting additional strain on public services.

Some states, cities, and school districts have begun to address this growing wage pressure, but the public sector has generally been much slower than private companies to implement change. Government pay rise proposals are often subject to lengthy union approval or negotiation processes, or require approval by elected officials. Many jurisdictions either don’t have enough fiscal space or are reluctant to embark on the recurring costs of permanent pay rises. How they respond has important long-term implications for their budgets and can potentially create challenges if revenues don’t keep up with new spending commitments.

Even before the pandemic, private sector wage growth was slightly outpacing that of state and local governments. Last year, however, differences in annual growth rates more than doubled, reaching the highest levels in almost four decades in the wages and salaries component of the Labor Department’s Employment Cost Index, which measures changes in labor costs per hour worked. In the fourth quarter of 2021, private sector wages grew 5% year-on-year, compared to 2.7% for state and local governments excluding inflation. This represents a reversal from the Great Recession, when public sector wages were initially better maintained.

Slower wage growth has contributed to a sluggish recovery in public sector jobs. Total state and local employment fell 3.7% in January 2022 from February 2020, just before the pandemic hit, compared with a fall of just 1.7% in the private sector.

In many states, lawmakers see increasing wages as crucial to retaining employees who are being courted by private companies. “The private sector, always quick to respond to opportunities, is snagging some of our best and most talented,” Wyoming Gov. Mark Gordon (R) warned at a recent lawmakers’ hearing.

Many states and local jurisdictions have approved wage increases, in large part due to budget surpluses caused by higher-than-expected tax revenues and multiple rounds of federal aid. Some have reached out to workers who have provided essential services during the pandemic, while broader measures elsewhere have covered more workers. More recently, governors in Kansas, Missouri, South Dakota, West Virginia and Wyoming have proposed pay rises for state employees.

By and large, however, government wage increases over the course of the pandemic have fallen short of the pace and scale of private-sector wage increases. A key reason: Most of the federal pandemic aid is temporary or one-time funding, so state and local officials have been wary of raises that increase spending on future budgets.

“People are reluctant to make long-term commitments,” said Leslie Scott, director of the National Association of State Personnel Executives.

Salaries and wages are a major budget item, accounting for about 21% of all states’ ongoing operating expenses in fiscal 2020. Percentages range from 16% in Florida and Maine to 32% in Hawaii, according to the US Census Bureau data. If new ongoing spending commitments such as pay rises are not matched by recurring revenues, governments could face long-term fiscal imbalances. To make these critical decisions, some states use multi-year budget forecasts, distinguishing between one-off and current income and expenses.

In lieu of permanent pay rises, some officials have approved temporary bonuses or hazard allowances. In Florida, the Sarasota County School District met a union-proposed blanket 6% increase in November with bonuses of $2,500 for all teachers and a $1 hourly increase for unpaid employees. At the time Chief Operating Officer of the district said The system had to watch out for recurring costs as temporary federal funds had helped increase its reserve fund. Similar debates played out in other school districts.

State and local agencies have also touted bonuses as a recruiting tool. In December, the Minnesota Department of Justice began offering set bonuses of $5,000 after two years of service as it attempted to fill about 200 open officer positions. Lisa Kelly, a recruiter for the department, said wages are a “big factor” for younger employees who are less concerned about health care or retirement plans. Early indications are that the bonuses are attracting significant interest, with applications in December 2021 quintupling compared to previous months, she said.

Another possible reason governments are slower to implement wage increases is the sheer size of the workforce, which spans multiple agencies. Officials may want to avoid unintended effects, e.g. B. when employees change departments. “Because increasing pay for any job class has a knock-on effect across the organization (particularly for those at the bottom end of the pay scale), we need to take a more deliberate and measured approach,” said Jay Gasdaska, director of the Pennsylvania Office of Employee Relations and Workforce support.

Pay increases in the private sector exceed those of similar positions in government

Pay increases for private employees generally exceed pay increases for public employees employed in similar industries or occupations. Federal data show particularly large differences in service work. Moreover, not only do state and local government employees’ paychecks lag behind their private sector counterparts; nor are they keeping pace with high inflation. Since the last quarter before the pandemic, they are down 3.7% adjusted for inflation. During the same period, wages in private industry fell by 0.5%.

The Arkansas Personnel Administration Bureau written down last year that competing offers from Walmart, McDonald’s, Amazon and other companies to raise wages hampered their efforts to fill lower positions. At the national level, many public bodies face difficulties in filling prison, health, social services and road maintenance vacancies.

A MissionSquare research institute opinion poll The study, released Jan. 27, found that 52% of state and local workers were considering changing jobs, retiring, or leaving the workforce for other reasons. She identified improving wages as the most important measure governments could take to retain workers. But pay and competition from private companies are not the only factors holding back public sector employment. Some may not want to work for health or family reasons. In other cases, the suspension or reduction of public services due to the pandemic is contributing to fewer jobs.

Going forward, states need to take more steps to improve their work environment and offer more flexibility, such as B. Remote work options, said Scott, who heads the association of state human resources managers. How well governments compete with private employers for talent in the long term will then depend not only on wages.

This analysis is based on the wages and salaries component of the Employment Cost Index published by the US Bureau of Labor Statistics. The index measures changes in the cost to employers per hour worked independent of the impact of shifts in employment across industries. Wage data includes hazard and incentive-based allowances, but excludes benefits, broad-based bonuses and most other forms of compensation. Pew’s calculations represent growth rates and do not compare pay levels or which groups of workers are paid more. Country-level estimates were not available.

Mike Maciag is an Executive at The Pew Charitable Trusts’ National Health Initiative.

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