Tuesday, July 10, 2012

Is Government Employment in RI falling?

Over the last six years, total government employment in Rhode Island appears to have fallen a great deal -- probably more than most of us might have thought possible at one time. Obviously, all of the budget cutting that has occurred since 2006 has played a role in this. One might also think that the recession itself would also have had a large negative impact. However, the stimulus plans from the past few years actually helped Rhode Island and many other states avoid state employee layoffs, although this type of help appears to have now ended.

Let's take a look at government employment in Rhode Island, which consists of federal, state, and local government employment. The chart below shows this going all the way back to 1990 (click to enlarge).

Total government employment peaked here in March of 2006 at 66,900. Over the next six years, through March of 2012, it declined to "only" 59,800, which was a 10.6 percent drop. Do we conclude from this that our state's public sector has truly contracted more than it should have and that no further declines should occur? Hardly. The chart above looks at government employment in absolute terms, independent of anything else. For those of you who have read many of my posts, this is not the correct way to approach this -- a relative view is more appropriate.

Our relative view is accomplished by looking at government employment relative to overall (payroll) employment. This is shown in the next chart (click to enlarge) that covers the same time period as the original chart.

Several things should jump out from this chart. The most obvious feature is the longer-term (secular) downtrend in government's share of payroll employment in Rhode Island. To help explain this to persons who might find this chart confusing, let me point out that government's share declines when it falls relative to overall employment. This does not necessarily mean that government employment, or for that matter, payroll employment, is declining. During periods of economic growth, this indicates that government employment grew less rapidly than did payroll employment.

The second significant feature is that starting in November of 2007, one month before our state's employment peak, government's employment share began rising, as it would through May of 2010, from a 13 percent to 13.8 percent of payroll employment. This reflects the fact that over this period, government employment was declining by less than did payroll employment. While this uptrend lasted for three years, government's share of payroll employment eventually began to decline once again as it now has for the past two years.

The final noteworthy element of this chart is that in spite of the decline in government's share over the past two years, government's share has remained above the levels consistent with its secular downtrend. This is reflected in the way the line for government's share has stayed above the dashed gold line reflecting the secular trend. So, while it might appear that a valid conclusion from the first chart is that Rhode Island's government employment may well have contracted enough, or perhaps too much, this is less obvious when viewed in the more proper context of government employment in the setting relative to overall employment.

To help better comprehend what underlies these charts, the next chart disaggregates the information contained in the second chart, looking at the shares of each of the three components of total government employment (click to enlarge).

Since 1990, state government employment's share has fallen noticeably, from 5 percent of payroll employment in the early 1990s to 3.5 percent at present. As this was occurring, federal government employment's share has remained virtually unchanged, starting at 2.4 percent in 1990 and falling only slightly to 2.2 percent at present. Clearly, local government employment's share rose from 6.6 percent in 1990 to its peak of 8 percent in March of 2006. At present, local government employment's share remains at 7.4 percent of payroll employment. That is highly significant, since local government employment is by far the largest component of total government employment in Rhode Island, exceeding the sum of the two other components. Within local government employment, local education employment comprises approximately two-thirds of its total.

Overall, as of May 2012, local education employment, the largest sub-component of total government employment in Rhode Island, was 22,800, or 2.8 percent of service-producing employment. While we might not be able to reduce that number very much through educational reform and other changes, the cost of financing K-12 education in this state is very high -- among the highest in the country on a per-pupil basis. Sadly, the "output" resulting from this very high expenditure is less than satisfactory. This points to relatively low productivity, if one were to relate attainment to expenditure. However, this is a very complicated issue. Suffice it to say for now that managing government here, as should be obvious from the situation for local educational employment and expenditure, is far more of a quality issue than one of just quantity.    

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