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Manhattan Institute

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Two Americas: Public Sector Gains in Recession

issue brief

Two Americas: Public Sector Gains in Recession

February 5, 2010

Over the last two years, as America has experienced the worst economic downturn since the Great Depression, workers have been battered. Employment has fallen sharply, with the employment rolls shrinking 5 percent from their peaks and unemployment around 10 percent. Hourly compensation has approximately kept pace with inflation but has not risen significantly in real terms.

However, this broad picture masks a sharp difference between two classes of employees: those who work in the private sector and those who work for the government. Workers in the public sector have experienced a very different recession from those in the private sector.

While private-sector employment fell sharply in the last two years, the public-sector, civilian workforce continued growing until mid-2008. It has since remained essentially flat. As a result, while private-employment rolls are nearly 7 percent smaller than they were three years ago, public-employment rolls have grown by nearly 2 percent.[1] (Approximately 17 percent of U.S. civilian employment is in the public sector.)

This trend makes sense. Governments do not face the same financial pressures as unprofitable corporations and can avoid layoffs in bad economic times. They can even capitalize on loose labor markets during a recession to hire cheaply. However, that’s not what they have been doing.

The problem: During the recession, public employees have continued to see strong wage growth, well ahead of the private sector. From the first quarter of 2007 through the last quarter of 2009, the average value of hourly compensation (wages plus benefits) rose by 9.8 percent for employees of state and local governments, compared to 6.9 percent in the private sector.[2] After adjusting for inflation, public employees have seen a rise in real hourly income over this period, while private employees have not.