OLMIS

by Charles Johnson, Brooke Jackson-Winegardner
Published Nov-23-2009

Government Employment Mostly in Education Oregon Slightly More Concentrated in Government Employment Public Sector Compensation Generally Larger Than Private Sector Why Do Government Employees Earn More?

Tracking government employment is a surprisingly tricky affair. The North American Industry Classification System (NAICS) is the official "go-to" authority on what is, and is not, included in an industry. While the NAICS doesn't have an industry reserved for government, it does have a public administration industry - which is very near to the same thing - sort of.

"The public administration sector consists of establishments of federal, state, and local government agencies that administer, oversee, and manage public programs and have executive, legislative, or judicial authority over other institutions within a given area..." according to the NAICS manual. So far so good, right? But "government establishments engaged in the production of private-sector like goods and services should be classified in the same industry as private-sector establishments engaged in similar activities."

As an example, workers at public utility companies are counted in the utilities industry. This grouping of government and private activities into the same industry gives rise to the need to use another grouping called ownerships as a way to differentiate employment at private and public establishments, and allow for breakouts of federal, state, and local government employees.

Nearly half of Oregon's government workers (47%) were employed in the education industry in 2006, while more than one in four (28.5%) were employed in public administration. The remaining 25 percent of public-sector workers were mostly in social assistance, transportation, or a non-classifiable industry.

This employment pattern for public workers differed significantly from the private sector employment pattern. There were five industries that employed the bulk (64%) of private-sector workers: accommodation and food services, healthcare and social assistance, manufacturing, professional and business services, and retail trade. With the exception of healthcare and social assistance, these industries employed less than 1 percent of all government workers. The other one-third of private-sector workers were fairly evenly distributed among the remaining broad industries.

In September 2009 there were 297,700 government employees working in Oregon, accounting for roughly 18 percent of the state's employment (Table 1). Government employment tends to be counter-cyclical, meaning that government employment levels rise when private-sector employment goes down, and vice versa. Government often adds jobs during recessions because of an increase in demand for social services.

Historically, Oregon tends to have a higher concentration of state and local government employment than the nation. Graph 1 shows Oregon's concentration of employment by government sector compared to the national average. In this analysis, a location quotient of 1.2 indicates that Oregon's employment is 20 percent more concentrated in state government than the nation as a whole. Oregon's consistently low concentration of federal government employment is likely due to the state's relatively rural nature, smaller population, and fewer major economic hubs compared to our West Coast neighbors.

Each quarter the Bureau of Labor Statistics publishes results from their Employer Cost of Employee Compensation survey. The survey, which has been conducted since 2004, shows the total value of compensation to employees and provides detailed categories for many types of compensation provided by employers. In the second quarter of 2009 the average cost of total compensation for all private employment was $27.42 per hour (Table 2) compared to $39.66 for state and local government employees (statistics are not available for federal employment). In general, state and local employees across the nation tend to have higher wages and benefits than private employees.

Over the past five years, total compensation for private employees has grown 17 percent, compared to 16 percent for state and local government workers. Private employees have made greater gains in wages and salaries compared to state and local employees.

In Oregon, the average earnings for public-sector employees were more than $43,000 in 2008. While this figure is about $3,000 higher than the average wage for private-sector workers, it is significantly influenced by the high average wage ($62,700) of federal government workers. Oregon's state and local government workers had average earnings much closer to those of private-sector workers (about $41,300 and $40,600, respectively).

One of the reasons average compensation tends to be higher for government employees is that the occupational mix for government employment is more concentrated in high-wage occupations. In Oregon in 2006, more than four in 10 government workers were in a professional or related occupation, compared to about one in 10 private-sector workers. The private sector also had a fairly diversified occupation mix, while public employees were more concentrated in a few occupation groups.

Some of the difference in compensation is also likely explained by differences in age. Older workers tend to have more work experience and are therefore able to command a higher wage from employers. In comparing the age distribution of private and public sector workers, we see that public employees tend to be somewhat older. In fact, more than half (55.2%) of Oregon's government employees were age 45 or older in 2008, compared to 40 percent of private-sector workers. On the other end of the wage spectrum, individuals age 14 to 24 accounted for only 5 percent of government workers, but nearly 16 percent of private-sector workers.

Another area where public and private-sector workers differ is education. Although there is no data on the education levels of specific workers, we do know the educational requirements of jobs in both the public and private sectors. Of Oregon's private-sector jobs in 2006, three-fifths required only on-the-job training and one-fifth required a bachelor's degree or higher. In the public sector, two-fifths of jobs required only on-the-job training and another two-fifths required a bachelor's degree or higher (Graph 2).

There is also a much higher incidence of unionization among government employees, which may lead to higher compensation levels. Nationally in the second quarter of this year the total cost of compensation to private unionized employees was $36.85 per hour, slightly higher than compensation rates for state and local employees. Private non-union employees had an average compensation rate of $26.31 per hour, slightly lower than the total private average.