Government-Financed Employment in the States

December 11, 2013

Only looking at outright public-sector employment fails to paint a full picture of how much state labor markets are relying on government spending, according to Keith Hall, a senior research fellow at the Mercatus Center, and Robert Greene, the project coordinator in the Regulatory Studies Program and Financial Markets Working Group at the Mercatus Center.

  • In over half of the states, less than 2 percent of the labor market was employed in jobs funded by federal contract dollars; but in some states (Maryland, New Mexico and Virginia), that number was much higher.
  • In those states, 7.7 percent to 10.7 percent of nonfarm payroll jobs were funded by federal contract dollars.

The study combined public-sector jobs with federal-contract funded jobs to determine how much each state's labor market actually relied on government spending.

  • Government-financed jobs accounted for more than 25 percent of nonfarm payroll jobs in seven states (Alabama, Alaska, Maryland, Mississippi, New Mexico, Virginia and Wyoming).
  • In six states, less than 16 percent of nonfarm payroll jobs were financed by the federal government (Delaware, Indiana, Nevada, Pennsylvania, Rhode Island and Wisconsin).

When public sector job markets and federal contract-funded job markets are large, private sector labor markets become smaller. The study found that private sector jobs ranged from less than 70 percent of a state's labor market (as is the case in New Mexico) to more than 85 percent (as in the case of Rhode Island).

The study compared the private sector labor market in each state between 2007 and 2012:

  • Alaska, North Dakota and Texas saw the largest private sector growth over those five years.
  • Alabama, Arizona, Florida, Idaho and Nevada experienced the biggest drop in private sector jobs during that time.

Source: Keith Hall and Robert Greene, "Government-Financed Employment and the Real Private Sector in the 50 States," Mercatus Center, November 25, 2013.

 

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