Some Brief Thoughts on Government

Employment, Size, and Productivity Relative to the Private Sector

These are just some general thoughts I have on government employment. The way government employment is presented within federal statistics often leads people to believe that government is an “Industry,” and that it is the largest “Industry” in the United States. Neither conclusion is true. Viewing government as an “Industry” in comparison to other industries also makes it easy to conclude that government is inefficient. This is also a fallacy of presentation.

Government is not an “Industry.” Government is an “Entity.” Just as entities such as General Electric Company operate in several different industries, so does government. Governments in the United States regulate and facilitate transportation in the air, on the ground, and on waterways. They also generate and sell electricity, purify and deliver water, and provide both primary and secondary education. The difference between government and General Electric in the federal statistics is that government is lumped together as one item. General Electric is spread between all of the industries in which it participates. There is no “General Electric” line in the federal statistics.

According to the National Income and Product Accounts (updated by the Bureau of Economic Analysis on September 29, 2023), government in the United States – federal, state, and local – employed 20.5 million full-time equivalent (FTE) workers in 2022. Total United States employment that year was nearly 143.4 million FTEs. So, government employment accounted for just under 14.3 percent of total FTE employment.

Critics often look at this and claim that government employment proves that government is the largest industry in the United States and immediately jump to the conclusion that government is, therefore, too big to afford. This conclusion does not directly follow from what the statistics are showing.

When we compare government employment to individual private industries, we need to remember government comprises many industries. It is separated in the National Income and Product Accounts not by what it does (as other industries are) but by who cuts the payroll checks. To compare government employment with private industries, we must begin to account for government employees by what they do.

FEDERAL EMPLOYMENT

Of the 20.5 million government jobs, nearly 4.35 million were federal employees. This amounted to 3.0 percent of total FTE employment in the United States. This was smaller than ten major private industry classifications within the National Income and Product Accounts:

• Construction (5.4% of total FTE employment)

• Manufacturing (8.7%)

• Wholesale Trade (4.1%)

• Retail Trade (9.6%)

• Transportation and Warehousing (4.3%)

• Finance and Insurance (4.6%)

• Professional, Scientific, and Technical Services (7.1%)

• Administrative and Support Services (5.9%)

• Health Care (10.5)

• Accommodation and Food Services (7.6%)

If we look at major government functions, 33.8% of federal employment is military. Given how ubiquitously the phrase, “Thank you for your service,” is thrown about, these 1.5 million government employees must not really be a part of any “Big Government” problem. People subconsciously separate the military off when they are being “Thankful,” but leave it in when they are worried about the size of the government “Industry.”

Another 14.0% of federal employment is in government enterprises that directly provide fee-based services to the public (hydroelectric power and water services to much of the country, transportation control on rivers and the airways, the federal reserve, the Post Office, etc.) Most of these enterprises generate revenue that offsets federal deficits.

The remaining 2.3 million federal workers inspect our food, enforce clean air and water regulations, build highways and airports, provide the federal parks and lands everyone enjoys, collect taxes and account for revenues and expenditures, and lots of other things we all benefit from. When I was young, the Cuyahoga River in Cleveland was so polluted it caught fire and fish in Lake Erie could not be eaten. Federal programs and workers were essential to the solution to both of those problems.

2.3 million FTE jobs do not equate to the biggest industry in the nation. There are actually 50% more people working in the Private Educational Services industry (3.5 million) than there are in general administration in the federal government. Only five of the 19 major private industry divisions in the National Income and Product Accounts employ fewer FTE employees than the general administration of the federal government.

Comparing apples to apples, most general administrative employees in the federal government are engaged in project management and administration. The comparable industrial classifications in the private sector employ nearly 5 times as many people, and these are management contractors that do nothing else. The private sector employs additional millions of managerial and administrative people across all industrial classifications. Federal government administration is by no means a dominant presence in industrial employment, even within its primary occupational categories.

STATE AND LOCAL EMPLOYMENT

In addition to federal employees, government employment includes 16.2 million state and local FTE employees. This amounts to 11.4% of all FTE employment nationwide. Given employment splits available from the Bureau of Economic Analysis (table CAEMP25N) we can assume that 4.4 million of these are employed at the state level and 11.8 million are employed at the local level.

Half of state and local employment is in education. Most of us have taken advantage of public education and would hate to live in a world without it.

Another 1.1 million work in public enterprises that provide fee-based services to the public and generate revenue. Nearly all of us consume publicly purified water. Many enjoy public trash collection. Quite a few consume locally generated electricity. Most of us utilize an airport or tollway on a somewhat regular basis. These are services that are most efficiently provided cooperatively, and government employment within them enhances our lives.

That leaves less than 7 million state and local FTE workers across 50 states and over 90,000 non-school local government entities (counties, cities, towns and villages, townships, and special districts) – about 78 per government unit, on average – to enforce the law, inspect restaurants, ensure safe construction, fight fires, build roads and streets, and a whole lot of other things we all need to have done.

OUTPUT COMPARISON

If you look at the numbers, governments at all levels in the U.S. accomplish a heck of a lot with the resources they are given. Gross output and FTE employment statistics estimate federal government employees generate $194,461 worth of gross output per FTE employee, state and local employees generate $153,605 per FTE employee, and the average private industry FTE employee generates $255,658.

Before anyone starts crowing that government employees don’t generate as much output as private employees, remember that government jobs are highly concentrated in services (which are generally less productive than goods producing industries). Government jobs are also generally undercapitalized. Government does not invest in capital goods to support its workers at the same rate private industry does.

Historically, undercapitalization is a direct result of the way we fund government and the way we insist government bids and pays for its purchases. In this respect, undercapitalization and the resulting productivity gap between public and private sector workers is a result of restrictions we put on government to maintain its accountability rather than a problem inherent in government itself.

 At the same time, the United States tax code and most individual state tax codes provide incentives for private businesses to overinvest in capital at the expense of labor. This also increases private sector productivity relative to public sector productivity, as we constrain the public sector to do exactly the opposite.

Finally, the great majority of capital investments made by federal, state, and local governments are in the form of contractual pass-throughs for the private construction of water and transit infrastructure. In these cases, government contracts out the high value-added production components of its investment to private industry while retaining the low value-added oversight tasks – once again increasing private sector productivity relative to government productivity even where government is the impetus of investment.

Recently, growing undercapitalization also results from the very fact that we as a public have decided to starve government of resources because we have convinced ourselves government is inherently evil. The result of insisting that government is inefficient and taking its resources away is that we make government less efficient. It becomes a self-fulfilling prophecy. Insisting that government does not work generally assures that it will not.

CONCLUSION

Bashing government as too large and as inefficient is popular, but it is simple-minded.

The apparent size of government is largely due to the way we account for government vis a vis how we account for private industries. If we linked everything private under one heading as we do government, we would not see the disparity that occurs when we lump-sum all government functions and differentiate private activities.

If we allowed government to invest in productive capital on the same basis as private industry, government labor productivity would be higher. If we did not incentivize private industry to overinvest in capital, the productivity differences in public and private enterprises would also diminish. The practice of contracting out the high value-added components of its capital investments to private contractors also magnifies the perceived shortfall in government productivity relative to the private sector.

When these things are taken into account, much of the distrust in the size and efficiency of government should disappear. Much of what we complain about with respect to government is a direct result of the constraints we impose upon our government. It is just as much within our power to fix government as it is in our power to cripple it.

We all thoughtlessly enjoy the benefits of government every time we go to bed in a safe house, turn on a light, step outside to drive our car, or go to a restaurant, park, or grocery store. Good government is a wonderful thing. At present, we still enjoy that. Our perceived discontent, however, runs the risk of imposing itself upon reality.