In order to pay more, employ less

First Posted: 6/4/2014

RALEIGH — If Gov. Pat McCrory and the General Assembly enact a 2014-15 budget that eliminates some government positions in order to fund pay raises for other government employees, they’ll get criticized in the usual manner by the usual people. So what? Such a decision would be consistent with the available data about how public employment in our state compares with that of other states.

You see, North Carolina governments have long been above average in staffing levels and at or below average in employee compensation. Despite the elimination of thousands of positions in state and local government during the recessionary budget cycles of 2009, 2010, and 2011, North Carolina remains overstaffed by national standards.

According to the latest statistics from the U.S. Census Bureau, which date to 2012, North Carolina had about 564,000 full-time-equivalent positions in state and local government. That’s the proper measure to use. You can’t use a simple count of all positions because states vary in their use of full-timers and part-timers. Similarly, you can’t look only at state government because states vary in how they fund and staff public services such as education and law enforcement. In some places, for example, teachers are primarily funded at the state level and classified as state employees. In other places, teachers are predominantly funded by local revenues and classified as such.

Combining these public-employment figures with general population estimates from the Census yields a public employment rate for each state. For 2012, North Carolina had 578 full-time-equivalentstate and local employees per 10,000 residents. That was 12 percent higher than the national average rate of 517 per 10,000 residents.

On the other hand, we know that North Carolina doesn’t rank particularly high when it comes to public-employee compensation. Even after adjusting for state differences in cost of living, the value of non-wage benefits, years of experience, and other factors, North Carolina’s teachers aren’t compensated above the national average at this point, and are likely somewhat below it. The comparison is no better in most other categories of state and local employment, and probably worse in a few (such as community college instructors).

A new study from the American Enterprise Institute suggests a different way to quantify the effect. In general, authors Andrew Biggs and Jason Richwine find that state and local employees across the country have higher compensation than do comparable private-sector workers in their communities. Note the term compensation as distinguished from pay. In many cases, salaries for public employees might be lower than salaries received by private workers with similar levels of experience, education, and job responsibilities. But when Biggs and Richwine factor in the value of non-wage benefits, public employees come out ahead in most states.

In some of them — typically states with highly unionized public workforces — the compensation premium for working in government is quite high. In Connecticut, for instance, public employees make an average of 42 percent more than comparable private workers. The premium is 35 percent in Pennsylvania, 34 percent in New York, and 23 percent in California.

In North Carolina, however, the average compensation differential between comparable public and private workers is essentially nil. That doesn’t mean our public employees are horribly treated. Given the fact that they are still less likely to lose their jobs than private employees are — state government isn’t going to go out of business — they’ve still got a fairly good thing going. That’s one reason vacant positions in state and local government still attract lots of applicants.

But because this is an average, there is no doubt that for some categories of public employees, North Carolina’s compensation is relatively low. After all, having lots of applicants isn’t the same thing as having lots of highly qualified applicants.

Reasonable, data-driven policymakers might well look at these statistics and conclude that North Carolina ought to reduce its public-employment rate and use much of the savings to fund compensation increases for high-priority jobs such as classroom teachers or assistant district attorneys.

Their conclusion would be correct, regardless of how many times their offices might subsequently be occupied by protestors with more free time than common sense.

John Hood is president of the John Locke Foundation.