Thursday, October 26, 2017

Wyoming Jobs: Big Government, New Normal

As a follow-up on yesterday's article, here is a review of the latest employment numbers from the Bureau of Labor Statistics (BLS). The overall picture is not very surprising: we are in a weak state of stability that can go either way, depending on what the legislature does in the upcoming session. 

Aside the points I made yesterday about the economic forecast for our state, there is one important piece of information in the latest BLS numbers that I would like to draw attention to. It is not something sensationally new, but rather the reinforcement of a trend that has been going on for a bit too long in our state.

Consider Figure 1:

Figure 1
Source: Bureau of Labor Statistics

In 2009 and 2010, when the private sector reduced employment for 19 months in a row, government merrily continued to add employees to its payrolls. Measured July 2008 to July 2010, Wyoming lost 19,400 private-sector jobs; during the same period of time, state and local governments hired 1,200 new workers. 

For every 1,000 jobs lost in the private sector, government created 63 new ones. 

When the private sector began rebounding in late 2010, the government hiring streak continued. By the end of 2012, the private sector was still 10,400 jobs short of where it was by the end of 2008. During the same period of time, state and local governments added 2,500 people to their payrolls. 

Over the next two years, 2013 and 2014, we saw somewhat of a balancing act from government. The private sector continued to do moderately well, adding a total of 7,200 jobs, while the state of Wyoming and our counties, cities, towns and school districts actually cut their payrolls by 1,300 employees. They were still up compared to pre-crisis 2008, while the private sector remained 3,200 jobs short of its 2008 number; still, the break in the hiring streak was welcome. 

Since the end of 2014, our government entities have continued to walk a thin line between their own zest for expansion and growing taxpayer discontent. Looking at the month of September, total non-federal government employment is down 2.8 percent since 2014; during the same period of time, private sector employment is down eight (8) (ocho) (acht) (├ątta) (kahteksan) percent. There is, in other words, still an imbalance in employment trends between government and the private sector. 

Our Government Employment Ratio - the total of state and local government employees per 1,000 private-sector employees - remains above 300, the highest in the country. We can still take pride in the fact that it has not yet reached European bloated-government proportions (in some countries, the GER exceeds 450) but that is perhaps not whom we want to compare ourselves to. Furthremore, the GER in Wyoming is ten percent higher so far in 2017 than it was ten years ago, during the Freudenthal administration's free-for-all-governments hiring spree.

We need to take measures to structurally - permanently - correct this imbalance between government and private employment. To be fair, government employment costs are only part of what our welfare state burdens us with (the cost of entitlements is more complex than that), but the size of the government payroll is a clear indication of what we as a state prioritize. The larger government grows, and the more independent it is of trends in private-sector employment, the more clearly and solidly we prioritize welfare statism over economic freedom and prosperity. 

There is one government-employment statistic that is often requested from readers of this blog, namely the number of employees in our K-12 system. Adding up education employees in both the state government and local governments, we land at approximately 30,000 people. Looking at annual averages, the number increased from 28,800 in 2007 to 31,100 in 2013, where it remained largely unchanged until a year ago. Since then, we have seen 13 months straight of a slow reduction of government education employment. The September 2017 number, 29,500, is 1,500 lower than the September number from 2014. 

It is worth noting that government education employment has not been overly excessive by headcount. If our school system had followed employment trends in the private sector, in 2016 they would have had about five percent fewer employees. The problem in the education system is not so much the number of people - although that matters, especially when it comes to non-instructional staff - as it is an issue of employee compensation. This is an issue I am confident we will return to later. 

As for the several industries in the private sector, it remains a mixed bag, just as we would expect when the economy has entered a new state of stability. The minerals industry is now up in jobs over last year for the fifth month in a row: at 20,100, the September jobs number is 12.3 percent higher than last year. 

As always, though, the devil is in the details. Coal mining remains down, while oil and gas extraction is essentially unchanged. As I have been reporting since the spring, almost all of the increase in minerals employment is concentrated to support activities. 

This is important: exploration, maintenance and other non-production functions do not in themselves promise future productive activity. There is, of course, nothing wrong with increased support activity, but the seven-month long streak of higher-than-last-year employment in this segment of the minerals industry has thus far not resulted in any visible uptick in employment in production. For sure, it takes time to move from exploration, equipment upgrades, etc, to production, but keep in mind what the October CREG report said about oil, gas, trona and coal production: they will all remain essentially flat, except for coal where there is a small downtick to be expected in both price and volume. 

What this means, bluntly, is that there is nothing of long-term substance to be expected from this year's rise in mining support activities. 

Other private-sector industries:

-Construction remains flat, trend-wise; September employment 22,100
-Manufacturing is stable; 9,400
-Wholesale trade is marginally down, trend-wise, over last year; 8,100
-Retail trade, also marginally down in the trend; 30,500
-Transportation and warehousing still trends marginally down, which is significant as logistics is one of the first to react to changes in economic activity; 11,200, down, notably, by 2,200 since September 2014
-Financial activities stay flat; 11,000
-Professional and business services - another key business-cycle industry - remains down and has lost 2,000 jobs in the past two years; September 2017 employment 17,100
-Health care and social assistance is stable trend-wise; 24,400
-Leisure and hospitality is also stable; 37,800

These industries, which represent the bulk of the non-minerals sector, employ more than 161,000 people. The total number for the non-minerals private sector is approximately 192,000, more than nine times the jobs in the minerals industry. I mention this not to belittle the minerals industry - on the contrary, I want them to thrive - but to, again, point to the fact that our state's economy is, and can definitely be, more than government and minerals. 

In conclusion, our "new normal" has now settled in and defines the Wyoming economy. There is no industry anywhere in Wyoming that is undeniably in growth, but there is also no industry in free-fall, as we saw last year. This stability remains weak; it is the legislature's job to produce sensible economic policies during the 2018 session, policies that do not upset this stability, but instead reinforce it by starting the work to structurally reform our large government. 

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