Utah's Public Sector Employment Rebounds

Utah's Public Sector Employment Rebounds

By Ben Crabb, Chief Economist

Utah's economy has experienced an observable trend that has been occurring since early 2023: government job growth has been outpacing that of the private sector. High rates of growth in the public sector - which includes government employees in public administration roles as well as public education and hospitals - have helped keep Utah workers earning and spending as the broader labor market has slowed. While the contribution of the public sector to labor market performance has been beneficial, the private sector has typically been the bigger jobs-producing engine. What has been occurring in the past eighteen months that has allowed the public sector to outperform the private sector in job growth?

The answer has to do with recovery from the 2020 recession. Employment and wages of the private and public sectors over the last few years have followed different paths of recovery. At the onset of the 2020 recession, employment levels took a sharp downturn in both public and private sectors, with the private sector hit particularly hard.

Buoyed by federal stimulus money and programs like the paycheck protection program, employers quickly began rehiring and found themselves competing for workers among historic labor shortages. By rapidly raising wages to attract workers, private sector payrolls rebounded to surpass 2019 levels by late 2020.

Public sector employment, by contrast, didn't fall as far in the early days of the 2020 recession, but the public sector was also slower to raise wages and recover its pre-recession employment levels. From the second quarter of 2020 to the first quarter of 2022, public sector wages grew by 9.7%, which by usual standards is a fast pace of wage growth. However, over the same time period private sector wages grew 14%, exceeding the public sector rate. Employment recovery in the public sector was accordingly delayed, finally surpassing 2019 levels in early 2022. By then, the state's population had grown by approximately 5%, straining a public sector that was still the same size.

Facing staffing shortages, state and local authorities began to approve public sector pay increases. At the same time, the overall labor market was beginning to cool as the Federal Reserve began a series of rapid interest rate hikes. By 2023, government wages were growing faster than private wages, and government employment growth began to outpace that of the private sector.

How have the different parts of the public sector experienced the jobs boom?

The broad "government" or "public sector" job category includes more than just public administration roles in local, state, and federal government agencies. Indeed, these types of jobs comprise only about one-third of all government jobs in the state. Nearly half (46%) of all government employees in Utah work at jobs in the local schools and public universities of the state's education system. And an additional 8% of government employees in Utah work in publicly owned hospitals and health care and social assistance organizations. The remaining balance of government jobs in the state fall into a variety of industries including transportation and warehousing; arts, entertainment and recreation; utilities; and construction.

Of the nearly 23,000 government jobs added over the two years ending in June 2024, about half are in local and state educational services as local schools and public universities restaffed after the 2020 recession (educational services employment numbers tend to be highly seasonal as many teachers are dropped from payroll counts in the summer months). About a quarter of new government jobs were added to local government payrolls in non-educational services roles (local county and city jobs such as police, libraries, public works, waste management, streets, parks and recreation etc). State government jobs excluding education account for about 3,200 positions, or about 14% of all public sector job growth in the last two years. The federal government added about 2,300 employees in Utah.

How long will the public sector jobs boom last?

The duration of booming public sector jobs growth is likely to be short lived. As of June 2024, public sector jobs made up about 15.7% of all jobs in the state, still below the January 2020 level of 16.1%. Another 7,000 jobs of additional hiring would get the public sector back to its early 2020 employment share.

While January 2020 is a convenient pre-recession reference date, the public sector does not have to return to the employment share it occupied at that time. During periods of strong economic growth, the public sector tends to see its employment share fall as a thriving private sector expands. Conversely, during recessions public sector employment shares tend to increase as the private sector struggles.

In Utah, the public sector employment share has fluctuated between 15% and 19% since 2008, putting today's rate of 15.7% closer to the bottom of that range. If the public sector returns to the employment share it occupied in early 2020, at current rates of job growth this would be accomplished by around the end of 2025. Should the public sector remain at a smaller size, the public sector jobs boom may be essentially complete now.

Other uncertainties and unknowns will continue to affect the economy. The decisions of the Federal Reserve, the outcome of the 2024 election, and international events could all affect the labor market. Should a deeper downturn be in the cards, the public sector will help act as a ballast against a truly deep recession. If private sector dynamism and strong growth return, the public sector will likely once again grow a little slower than the private sector as the two domains ebb and flow.

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