Government Spending, Labor

Wait … you say there’s a recession?

Geoffrey Lawrence

After Governor Jim Gibbons' special State of the State address Monday night, many members of our ruling class of government employees are doubtlessly shocked to learn that the impact of economic recession could possibly extend to them as well. Gibbons mentioned the possibility of instituting across-the-board, 6 percent pay reductions and possible layoffs for nearly 300 state workers.

It is certainly unfortunate that any Nevadan should be adversely impacted by an economic recession engineered through years of bad federal policy. Yet, to this point, taxpayers in the private sector have borne all the pain while public-sector workers have not only been insulated from the effects of recession, but have actually prospered during it.

Data from the state Department of Employment, Training and Rehabilitation (DETR) shows that, from the first quarter of fiscal year 2008 to the final quarter of fiscal year 2009, wages and employment opportunities for state and local government workers increased substantially while private-sector jobs and wages underwent massive cuts.

During this period, state government employment increased 5.43 percent, while total state government employee wages increased 14.17 percent. Employment in local governments increased 5.97 percent, with total wages climbing 2.64 percent. In the sacrosanct K-12 education sector, however, employment increased 16.08 percent, while total wages increased by 13.21 percent.

How did private-sector workers fare?

Employment fell 12.82 percent and total wages fell 12.63 percent.

Clearly, the effects of recession have so far been largely isolated to the private sector, where worker unemployment has topped 13 percent. Unionized public employees, thus, have been able to use their greater political power to massively transfer wealth from private-sector workers to themselves, allowing them to consume an ever-larger share of the state's economic output.

Historically, conventional wisdom had it that public-sector workers trade away the higher salaries that could be earned in the private sector in exchange for the greater security of the public sector. However, there is little evidence that this is the case in Nevada. An analysis of state DETR data commissioned by the Las Vegas Chamber of Commerce shows that the average public-sector worker is paid 28.1 percent more than the average private-sector worker in a similar job classification. Indeed, "96.3 percent of all state and local workers are employed in major occupational classifications in which the median pay is higher than that reported for private sector workers." And that analysis doesn't even consider the comparatively extravagant benefits that public-sector workers enjoy.

Hence, the conventional wisdom has no grounding in actual fact when it comes to Nevada. Indeed, it appears that unionized public-sector workers have constituted themselves as a ruling class that has not only enjoyed higher compensation levels than their private-sector subjects, but that has also been insulated from the impact of recession.

It is a highly tenuous position to maintain that the public sector has "been cut to the bone" and that public-sector workers have felt the pain of this recession when legislators increased General Fund spending in 2009 and when statistics make clear that both employment and wages have increased for public-sector workers.

To place Gibbons' recommendations in perspective, the 6 percent salary reduction he has asked for is less than half of the 12.63 percent decline in private-sector wages that occurred between Q1 FY08 and Q4 FY09. It also would more accurately reflect the annual cost-of-living adjustment for which public employees are eligible. Curiously, these adjustments only go upward and rarely fall – even as the actual cost of living declines.

Further, if the rate of job loss among public-sector workers were equal to that of private-sector workers, it would mean eliminating 5,790 state workers and 18,469 local government workers, including 13,391 K-12 employees, according to DETR statistics. In comparative terms, Gibbons' recommendation is actually extremely modest.

Given the plight of the private sector, those in our state ruling class should be ecstatic that they continue to be coddled by the governor and lawmakers. If public-sector work were truly about trading off financial reward for greater security, public employees would face much larger pay reductions than 6 percent.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.