No Shortage of Money to Pay State Workers in South Carolina

For those of us who work in the private sector the question of compensation always comes down to how the market values our work. If we produce a better product than last year, we have earned the right to a raise. If we slack off and fall behind competition, we deserve a compensation cut, or at least no raise. This way we always get the best possible evaluation of our work, and we always know what we have to do to earn more money: sharpen our skills, get better at what we do and make more money for our employers.

It does not work quite the same way with government workers. There, compensation is so standardized that it becomes a matter of legislation. In South Carolina, e.g., there is a bill floating around the state legislature to raise compensation for state workers by four percent. The reason has nothing to do with their performance on the job: it is merely to compensate them for not having received a raise for four years. From Columbia-based The State:

House lawmakers voted 113-0 to approve the state’s $23 billion budget Thursday — and Senators are already planning to change it. Sen. Darrell Jackson, D-Richland, is proposing to give state workers a 4 percent raise — 1 percent for every year they have not received a raise. It would cost about $60 million for state workers. The House budget includes a 2 percent raise for state employees. Jackson said his plan would also include a 4 percent raise for teachers. It’s unclear how much that would cost. House lawmakers set aside an extra $152 million to give teachers and school district employees a 2 percent raise, only to find out it wasn’t enough. They added another $8 million this week to teacher and school district employee salaries.

One has to wonder how much actually is enough. As the following little table shows, the total cost of state worker compensation has not exactly been falling behind the private sector. From 1990 to 2010 the total compensation of private employees in South Carolina increased by an average of 4.3 percent per year. State worker compensation grew by 4.1 percent per year. However, data for the past decade and even more so the past five years (2010 is the latest year with BEA data) clearly shows that state workers have been doing fairly well:

  1990 to 2010 2000 to 2010 2005 to 2010
Private workers 4.3% 2.9% 1.9%
State workers 4.1% 3.2% 3.5%

It is important to keep in mind that this is total compensation, in other words, per-employee compensation multiplied by the number of state and private workers, respectively. Nevertheless, it shows that if the state of South Carolina has a problem giving raises to its employees, it is not for lack of money. More likely, it has to do with the fact that they have kept on hiring people through the recession.

To find out whether or not this is true we head over to the Bureau of Labor Statistics. Their numbers tell us that the state of South Carolina has indeed cut its number of employees during the recession – kudos for that – but the 4.7 percent cut from 2007 to 2011 was way smaller than the eight-percent decline in private sector jobs. The burden of state workers on the shoulders of the private sector has therefore increased: in 2007 there were 61.7 state employeer per 1,000 private employees in South Carolina; in 2011 that ratio had increased to 63.9.

To put this another way, let us measure per-employee compensation in state government vs. per-employee compensation in the private sector (using again BEA data). In 2000 a state worker was compensated at $1.35 for every $1.00 that a private-sector employee made. In 2005 that ratio was $1.45 to $1.00 and in 2010 it had risen to $1.59:

  Excess state compensation
2000  $   1.35
2001  $   1.34
2002  $   1.39
2003  $   1.37
2004  $   1.42
2005  $   1.45
2006  $   1.46
2007  $   1.54
2008  $   1.58
2009  $   1.59
2010  $   1.59

The bottom line is that there has been no shortage of money in the South Carolina state coffers to dole out generous compensation to state workers.

A better way than legislating about the compensation of state workers is to tie their compensation increases to growth in the state GDP. Since government stifles growth, excessive growth in government will boomerang back to state workers. By contrast, workers in a small, lean state government that does not get in the way of the private sector can look forward to generous compensation increases.

Something to consider for Governor Nikki Haley?