The Earnings of State Government Employees in the United States

In 1979 there were 3.7 million state government employees (SGE’s) in the United States, with a monthly payroll of $3.9 billion. This state government employment represented a sizable increase from the 1970 level of 2.8 million workers.’ Recent work by Smith [1977] provides evidence of a wage differential between SGE’s and private sector workers. She finds that (male) wage rates are about 8% higher in the public sector. However, controlling for observable socioeconomic characteristics reverses this finding and leads to a 3-11% wage differential favoring the private sector.2 Although Smith’s study presents interesting statistics, it does not provide much insight into employment policies followed by state governments which lead to their wage and employment levels. This paper provides a behavioral foundation by shifting the focus from a comparison of state government/private sector wage levels to a study of wage differentials among SGE’s employed by different states. The framework used in the analysis extends my earlier work on wage policy in the federal bureaucracy [see Bojas, 1980,1982]. It is assumed that state governments view personnel policies as a political tool, and that the policies followed are those that have the highest political returns. This model yields implications regarding variations in sizes of state governments, the number of SGE’s, and the SGE wage as a function of the relevant political factors in the state. Table 1 summarizes state government employment statistics. The first column gives the number of SGE’s in 1970 for the largest 15 states. Column