How States Can Shrink Bloated Bureaucracy and Save Taxpayer Dollars
Key Findings
- There are more than 20 million state and local government employees nationwide.
- Government employees earn 40 percent more in wages and benefits than private sector employees.
- Salaries and benefits for government employees are bankrupting local governments.
- High employee headcount is associated with overregulation and burdensome government intervention.
Government at all levels is plagued by bureaucratic inefficiencies and bloat, which waste taxpayer money and impose a burden on residents. While reducing the size of the federal government is important, it is crucial that state and local governments are not overlooked. Reducing tax burdens and shrinking state and local government promotes economic freedom and allows residents to thrive.1 However, government only continues to grow. Currently, there are more than 20 million state and local government employees nationwide.2 Since the start of 2023, state and local government employment has grown by more than 730,000 jobs and has surpassed the previous peak by more than 320,000 employees.3
In 2023, there were 19.5 million state and local government employees nationwide, with 5.3 million employed by a state government and 14.2 million employed by a local government.4 In total, wages alone for these employees are estimated to cost taxpayers more than $1.23 trillion.5 The cost of providing health care, retirement, and other benefits to these employees adds billions more in costs.6 The number of employees and payroll costs vary widely by state, with California spending more than $185 billion annually on wages for its 2.3 million employees and South Dakota spending slightly more than $2.6 billion on wages for its 65,000 employees.7
While private sector employment has also been on the rise in recent years, government employment has been growing at a faster pace than other types of employment since March 2023.8 Additionally, state and local government employment is virtually immune from economic factors. In 2020, private sector jobs fell from 129 million to 108 million—a drop of 16 percent—while government jobs only fell by three percent.9 During the Great Recession, government employment grew while private employment plummeted.10
The compensation of government employees is much higher than in the private sector
As of June 2024, the total employer cost—which includes wages and benefits—for the average private sector employee was $43.78 per hour.11 Total employer costs for the average government employee was $61.27 per hour.12 Total compensation is 40 percent higher for public sector employees compared to private sector employees, and benefits are 80 percent higher.13 Additionally, over the last 12 months, the compensation of government employees has increased at a faster rate than other occupations.14
Going beyond averages to account for differences in education and job type, government employees earn more than private sector employees in the same field for most types of jobs.15 The difference is especially stark in fields like services and sales and office occupations.16 For example, government employees in the service sector earn more than double what their private sector counterparts earn, and their benefits are four times higher.17
Government is also slow to react to changing needs, meaning that some positions remain even when they are no longer needed. In June 2024, the involuntary separation rate for private employees was 3.6 percent compared to 1.2 percent for government employees.18 This means that private sector employees are three times more likely to be terminated or laid off compared to government employees.19 Labor unions and archaic policies prevent even poor performers and those with misconduct from being terminated.20
Excessive employee benefits are imperiling state and local budgets
Salaries and benefits for government employees consume a large portion of state spending.21 For example, an analysis of North Carolina’s 2022 budget shows that 66 percent of state income tax revenue was spent on salaries and benefits for state employees.22
In addition to salaries, government pension and retiree health care benefits are extremely generous compared to private sector benefits.23 A whopping 86 percent of state and local employees have access to a defined benefit pension compared to just 15 percent of private sector employees.24 The cost to employers for retirement benefits for government employees is more than four times the cost for private sector employees.25
These benefits are extremely expensive and are bankrupting local governments, forcing cuts to services for taxpayers.26 Chicago faces a $37.1 billion debt to city employee pension funds, and the state of Illinois has an unfunded pension liability equal to 212.3 percent of state revenue.27-28 In 2021, total unfunded pension liabilities for all states reached $836 billion—49 percent of states’ revenue.29
From 2000 to 2018, the share of all states’ K-12 education budgets that went to employee pension funds nearly doubled, increasing from 7.5 percent to 14.4 percent.30 In total, salaries and benefits are nearly 80 percent of education spending, driving the 13 percent rise in cost per student since 2010.31
State and local governments are feeling dual pressure: ever-growing pension and benefit liabilities and the demands of public-sector unions for even more generous wages and benefits. Nearly 40 percent of state and local government employees are members of a union, compared to just six percent of private sector employees.32 In contract negotiations, unions push for increases to salaries and benefits that taxpayers simply cannot afford.33
Overregulation and burdensome government intervention are associated with high numbers of government employees
It is not just state and local budgets that are impacted by an inefficient, sprawling government. States with more government employees also have more regulations, and a higher regulatory burden on businesses and residents.
When new regulations are added to the books, government employment goes up. For example, the state of Minnesota recently imposed new regulations related to legalizing marijuana, which are projected to require more than 200 new government positions to implement.34 Other new welfare programs created by the most recent spending legislation are expected to lead to more than 1,000 new government employees in the state.35
States should cut down on waste and inefficiency by reducing the size of the bureaucracy
State governments can save taxpayer dollars and reduce bureaucratic inefficiency by reducing the size of government. Government agencies are often slow to respond to change, and open positions can remain unfilled for months or even years yet remain as a line-item in an agency budget.36 At best, leaving a government position unfilled for months suggests its functions are not necessary, and that the post does not need to be filled in the future. However, some state and local government agencies intentionally do not recruit for open positions, leaving them unfilled so they can use the funds allocated for those salaries for other purposes.37
To reduce unnecessary bureaucracy and save taxpayer dollars, states should eliminate government positions that have been open for months. For example, in Nebraska, the executive budget division must review and reauthorize any positions that have been open for more than 90 days.38 And upon request, the executive state personnel division may determine whether these vacant positions are properly classified. As such, the governor may direct the divisions to review and eliminate these positions to permanently reduce the size of the bureaucracy.39 Recently, this policy led to the elimination of nearly 500 positions, saving $26 million in the budget.40
States should also lift restrictions that slow down government hiring and firing to make departments more efficient and agile. Even though most states are “at will,” there remain numerous barriers to dismissal, demotion, suspension, or other discipline of government employees despite poor performance or misconduct. Mississippi law allows for agencies to request temporary exemptions from civil service laws that make it too difficult to fire bad employees or make necessary changes to the agency.41 After reviewing the agency’s request and plan for action during the exemption period, the legislature may temporarily codify an exemption from civil service laws in statute. During exemption periods where restrictions were lifted on an agency, terminations in most departments substantially increased, and human resources directors reported department operations improved.42
The Bottom Line: States should reduce the size of bloated and inefficient bureaucracy to save taxpayer dollars and limit burdensome government intervention.
The role of state and local government is to provide public services to taxpayers. However, far too often bureaucracy grows and makes government less efficient and more burdensome to residents and businesses. It is important for state governments to save taxpayer dollars and cut back where there are inefficient departments or positions that are no longer needed.
Government employees’ salaries and benefits cost trillions, and to be good stewards of taxpayer dollars, states should reduce the size of government.
REFERENCES
1 William Ruger and Jason Sorens, “States are proving in spades that small government works,” Cato Institute (2023), https://www.cato.org/commentary/states-are-proving-spades-small-government-works.
2 Bureau of Labor Statistics, “Employment, hours, and earnings from the current employment statistics survey,” U.S. Department of Labor (2024), https://data.bls.gov/pdq/SurveyOutputServlet.
3 Bureau of Labor Statistics, “Employment by industry,” U.S. Department of Labor (2024), https://www.bls.gov/charts/employment-situation/employment-levels-by-industry.htm.
4 Census Bureau, “2023 ASPEP datasets and tables,” U.S. Census Bureau (2024), https://www.census.gov/programs-surveys/apes/data/datasetstables.html.
5 Author’s calculations based on the monthly payroll cost for state and local employees in March 2023 of $100.3 million, accessed at https://www.census.gov/programs-surveys/apes/data/datasetstables.html.
6 Author’s calculations based on the number of state and local government employees and the average hourly cost to employers of benefits including health insurance, life insurance, paid leave, retirement and savings, and other benefits for government employees, found via the Bureau of Labor Statistics, “Employer cost for employee compensation-March 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/ecec.
7 Author’s calculations based on the payroll costs for state and local government employees found via the Census Bureau, “2023 ASPEP datasets and tables,” U.S. Census Bureau (2024), https://www.census.gov/programs-surveys/apes/data/datasetstables.html.
8 Ryan McMaken, “Growth in government jobs points to recession,” Mises Institute (2024), https://mises.org/power-market/growth-government-jobs-points-recession.
9 Federal Reserve Bank of St. Louis, “FRED graph,” Federal Reserve Bank of St. Louis (2024), https://fred.stlouisfed.org/series/USGOVT#0.
10 Ibid.
11 Bureau of Labor Statistics, “Employer cost for employee compensation-March 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/ecec.
12 Ibid.
13 Authors calculations based on the average hourly costs for compensation for private-sector employees of $43.94, and benefits of $13.04 and average hourly cost of public-sector employees’ compensation of $61.37 and benefits of $23.57.
14 Bureau of Labor Statistics, “Compensation in private industry and state and local government, 12-month percent change,” U.S. Department of Labor (2024), https://www.bls.gov/charts/employment-cost-index/compensation-in-private-industry-and-state-and-local-government-12-month-percent-change.htm.
15 Bureau of Labor Statistics, “Employer cost for employee compensation-March 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/ecec.
16 Ibid.
17 Author’s calculations based on average hourly compensation for service employees in the private sector of $22.02, and benefits of $4.97 and average hourly compensation for service employees in the public sector of $47.05 and benefits of $20.18.
18 Bureau of Labor Statistics, “Job openings and labor turnover—June 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/pdf/jolts.pdf.
19 Ibid.
20 Susan Edleman, “Idled NYC educators do nothing but sign in remotely, even from Europe,” New York Post (2023), https://nypost.com/2023/01/14/idled-nyc-educators-do-nothing-but-sign-in-remotely-even-from-europe/.
21 Census Bureau, “2023 ASPEP data tables,” U.S. Census Bureau (2023), https://www.census.gov/data/datasets/2023/econ/apes/annual-apes.html.
22 Brian Balfour, “The state budget: Where the money actually goes, and how to cut spending,” Civitas Institute (2020), https://www.nccivitas.org/2020/state-budget-money-actually-goes-cut-spending/.
23 Bureau of Labor Statistics, “Employer cost for employee compensation-March 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/ecec.
24 Bureau of Labor Statistics, “Employee benefits in the United States, March 2023,” U.S. Department of Labor (2024), https://www.bls.gov/ebs/publications/employee-benefits-in-the-united-states-march-2023.htm.
25 Bureau of Labor Statistics, “Employer cost for employee compensation-March 2024,” U.S. Department of Labor (2024), https://www.bls.gov/news.release/ecec.
26 David Knapp et al., “Steps for effectively addressing state and local pension crises,” RAND (2023), https://www.rand.org/pubs/research_briefs/RBA2307-1.html.
27 Heather Cherone, “Chicago’s pension debt continues to rise, increasing $1.8B in 2023 to $37.2B: City analysis,” WTTW (2024), https://news.wttw.com/2024/07/02/chicago-s-pension-debt-continues-rise-increasing-18b-2023-372b-city-analysis.
28 David Drane et al., “Long-term liabilities weigh on state finances,” Pew Charitable Trusts (2024), https://www.pewtrusts.org/en/research-and-analysis/articles/2024/05/07/long-term-liabilities-weigh-on-state-finances.
29 Ibid.
30 Johnathan Moody, “Hidden education funding cuts: How growing teacher pension debt is eating into state K-12 education budgets,” Equable (2020), https://equable.org/wp-content/uploads/2020/04/Hidden-Funding-Cuts_National-Paper_Final.pdf.
31 National Center for Education Statistics, “Public school expenditures,” National Center for Education Statistics (2024), https://nces.ed.gov/programs/coe/indicator/cmb/public-school-expenditure.
32 Liesel Crocker, “Why states should require annual union recertification,” Foundation for Government Accountability (2024), https://thefga.org/research/why-states-should-require-annual-union-recertification/.
33 Bill Walsh, “The teachers’ union bankrupted Minneapolis schools,” American Experiment (2022), https://www.americanexperiment.org/the-teachers-union-bankrupted-minneapolis-schools%EF%BF%BC/.
34 Briana Bierschbach and Jessie Van Berkel, “Minnesota needs to hire thousands of new employees. Can the state find them?,” Minnesota Star Tribune (2023), https://www.startribune.com/minnesota-needs-to-hire-thousands-of-new-employees-can-they-find-them-cannabis-paid-leave/600281713/?refresh=true.
35 Ibid.
36 Katherine Barrett and Richard Greene, “An often-overlooked reason for public sector job vacancies,” Route Fifty (2023), https://www.route-fifty.com/workforce/2023/01/often-overlooked-reason-public-sector-job-vacancies/382434/.
37 Ibid.
38 R.R.S. Neb. § 81-1113.
39 Nebraska Executive Order No. 24-03.
40 Martha Stoddard, “Nebraska Gov. Jim Pillen cutting half as many vacant state jobs as originally announced,” Omaha World-Herald (2024), https://theindependent.com/nebraska-gov-jim-pillen-cutting-half-as-many-vacant-state-jobs-as-announced/article_c2fcbcfe-2cee-11ef-b9d2-cb129cd30281.html.
41 Miss. Code Ann. § 25-9-127(8).
42 Joint Legislative Committee on Performance Evaluation and Expenditure Review, “Issue brief: Effect of agencies being exempted from Mississippi State Personnel Board’s purview,” Mississippi Legislature (2020), https://www.peer.ms.gov/sites/default/files/peer_publications/rpt651.pdf.
