There’s been a heavy focus on reducing the size of government in the name of reducing government deficit spending and the national debt. Fingers point to the number of government workers. However, expressed as a percentage of overall employment, federal employment has been shrinking since 1975.
Why People Worry About The Deficit
Devotees of modern monetary theory argue that the concern over the debt is somewhat irrational because a country that pays for things in a currency it controls can’t really get into trouble. Printing money isn’t a problem unless inflation rises they say, and then there are multiple ways of addressing the issue by reducing the amount of money available — taxation by Congress or so-called appropriate monetary policy by the Federal Reserve.
The federal government pays its bills by borrowing money through selling Treasury instruments — bonds, notes, and bills. Even if MMT theories were correct, getting there from the vast global market entanglements, existing obligations, and trust issues would be immensely difficult.
Annual U.S. debt payments are already larger than the defense budget — the largest single discretionary spending item — and growing. The concern among many is that without a rapid imposition of control, the country and economy could spin out of control, leaving current and future generations to deal with the aftermath.
Why Many Think Government Workers Are The Problem
Labor costs are often a significant portion of an organization’s expenses. According to a Deloitte analysis, workforce costs on average run between 50% and 60% of the spending of a “typical Fortune 500 company.”
The figures can vary wildly. When corporations have a bad quarter or face negative macroeconomic forces, many will hold layoffs to reduce headcounts and, if publicly held, placate shareholders and potential investors.
When the discussion topic is reducing government spending, the federal workforce is bound to come up. If a big expense in a large organization is typically people, then assuming the same for the federal government might seem reasonable. But the impression many have is mistaken.
Government Workers Patterns
Estimates of federal layoffs have been confusing and conflicting, largely because getting central and accurate data has been extremely difficult. Roughly 200,000 dismissals were mentioned, but there have also been some rehires of critical workers as well as a few reversals by courts.
Additionally, as Marketplace reported in February, the cost of federal headcount is much lower than in businesses. The annual federal payroll for workers — probably not including contractors and not including active-duty military personnel— is about $336 billion a year for about 3 million workers, which is a bit under 5% of total federal spending. As Don Kettl, a professor emeritus and former dean of the University of Maryland School of Public Policy, told the public radio program that government payroll for other developed countries is about 5% of their GDP. It is about 1% for the U.S.
The absolute number of federal workers has grown over time but so have the country’s population and the number of services. Maybe a more realistic way to look at the federal labor force is to look at it as a percentage of all nonfarm workers. Below is a graph showing the figure over time, created on the Federal Reserve Bank of St. Louis’s FRED site by dividing the number of federal employees by all nonfarm workers, or, mathematically, (# of federal employees)/(# of all nonfarm employees in the country):
The available government data does not include military personnel or employees of the Central Intelligence Agency, the National Security Agency, the National Imagery and Mapping Agency, and the Defense Intelligence Agency. However, employees of the Postal Services are included. As cutbacks have not focused on such personnel, this analysis seems reasonable.
Starting July 1975, the labor overhead — the percentage of total labor needed for government functions — dropped from 19.4% to 14.8%. The gray bars represent recessions and as the federal government doesn’t tend to lay people off as many private employers do in difficult times, temporary upward spikes are understandable as the denominator of the ratio shrinks, making the resulting fraction larger.
The common concern about the number of government workers is overblown. The comparative size has been shrinking steadily for nearly 50 years and, as a percentage of overall government expenses, it’s a relatively small one.
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