Only the public sector is 'doing fine'

Article Highlights

  • Some of the President #Obama’s supporters insist that his ‘doing fine’ comment actually voiced a fundamental truth.

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  • Unemployment rates have been consistently and substantially lower in the public sector than in the private sector.

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  • Last month, government workers had the lowest unemployment rate (4.2 percent) of any class of worker.

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President Obama’s puzzling claim that “the private sector is doing fine” has been met with much skepticism, and even ridicule. To many observers, it is self-evidently wrong. While many in the media are content to label the incident a “gaffe” and move on, some of the president’s supporters insist that he actually voiced a fundamental truth, albeit inelegantly. Are they right?

In the eyes of his defenders, Obama simply was pointing out that the private sector has been adding jobs in recent months while the public sector has been losing them. “Doing fine” was apparently just an imprecise and awkward way of saying the private sector is gaining.

"'Doing fine' was apparently just an imprecise and awkward way of saying the private sector is gaining." -Andrew G. Biggs and Jason Richwine

The president went on to argue that an effective way to stem unemployment would be for Congress to borrow money and send it to state and local governments — who are generally prohibited from deficit spending — to help avoid public-sector layoffs.

So is it really the case that the public sector needs help more than the private sector? We are skeptical, to put it mildly. First, some context concerning unemployment in the public sector: It is well known that government employees enjoy considerably more job security than private workers. The steps required to fire tenured public workers are often so arduous that managers are loath even to try.

Consequently, unemployment rates have been consistently and substantially lower in the public sector than in the private sector. The recession and its aftermath are no exception. Last month, government workers had the lowest unemployment rate (4.2 percent) of any class of worker categorized by the Bureau of Labor Statistics (BLS). The next lowest unemployment rate, 4.9 percent, is for workers in the burgeoning energy industry. Construction workers, by contrast, are unemployed at nearly three times the rate of government workers.

Bureau of Labor Statistics

Public employees tend to be more educated and experienced than the average private-sector worker, so one could argue that government workers just naturally have lower unemployment rates. The figure above (at top) tests this possibility, comparing public-sector unemployment rates with the unemployment rates of comparably skilled workers in the private sector over time. In other words, the private-sector line shows the unemployment rate that a typical public worker might face if he took his skills to the private sector.

Much of the difference between the two lines — an average of 3.3 percentage points over the past eleven years — is likely to reflect a perk of government work, one that public employees have enjoyed for a long time. That the gap narrowed slightly in 2011 — after exploding since 2008 — isn’t evidence that the private sector is “doing fine” and the public sector is ailing. In this context, arguing for a bailout of state and local governments seems rather shortsighted.

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About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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