Muniland spends 12 percent of U.S. GDP, but not on creating jobs

July 16, 2013

It’s mind-boggling how much of the national economy is held up by state and local governments. From the Federal Reserve Bank of Atlanta:

State and local governments together spend more on directly consumed public goods and services (excluding grants and national defense) than the federal government does, said Tracy Gordon, a fellow at the Brookings Institution. The economic impact of that spending is significant—state and local governments account for approximately $1.8 trillion, or about 12 percent of U.S. gross domestic product, she added.

The Fed chart above shows data for the southeast states, but it mirrors national trends. State and local governments are not increasing employment. What is increasing is the amount of employee wages that is going to benefits. The Bureau of Labor Statistics wrote:

Wages and salaries were up 1.0 percent for the 12-month period ending March 2013, the same as the March 2012 change. Prior values for this series, which began in June 1982, ranged from 1.0 percent to 8.5 percent.

Benefit costs increased 3.5 percent in March 2013, up from the March 2012 increase of 2.3 percent.

According to the BLS, the cost per hour worked for state and local workers was $42.12 in March, with approximately 35 percent, or $14.85, going to benefits. This figure represents all muniland workers, including teachers.

The equivalent cost for for private sector workers was $29.13 with 30 percent, or $8.66, going to benefits.

The highest cost for employees in muniland are for teachers, who cost $57.53 dollars per hour with 30 percent, or $17.26, going to benefits. Public school teachers on average have a similar level of non-wage compensation as private sector workers, while the rest of public employees are receiving higher benefit levels than the private sector.

It’s hard to see how this is sustainable. Will there be increasing efforts to rein in public worker benefits or will muniland employment continue to decline?

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