| November 7, 2011
What’s the Largest Industry in Oklahoma? Government
According to the latest data, it takes 18 Oklahomans in the private sector to fund one Oklahoma state government job.
Regular readers of Perspective will notice that we periodically engage in this exercise, asking how many Oklahomans it takes to fund one government worker. Why? What’s the point? The point is not to disparage government workers. The point simply is to illustrate the concept that all money spent by government must first come from the private sector and that government employees really are “servants of the people.”
Some folks might advocate raising taxes to lower this worker ratio. But as was pointed out in these pages in November 2010 (“What a Tax Hike Would Do to Oklahoma’s Economy”), in the long run that would only serve to shrink Oklahoma’s already small (relative to the national average) private sector and lower the standard of living for all Oklahomans.
In total, for 2010, there were 86,641 state government workers (including higher education) in Oklahoma, earning $4,284,870,000—or an average of $49,455 per job. As a result, it would take a total of 1,533,925 private-sector jobs to fund Oklahoma’s state bureaucracy—more people than were employed in the private sector in 2010 (1,224,047).
This may appear confusing at first glance. But keep in mind that this counts only taxes that are directly paid by individuals and does not include taxes paid by businesses, by taxpayers with higher-than-average incomes, taxes paid by nonresidents or retirees, or revenue from matching federal funds (such as Medicaid).
Moving now to the local level, it takes 30 Oklahomans in the private sector to fund one local government job. In total, for 2010, there were 202,934 local government workers in Oklahoma, earning $9,660,593,000—or an average of $47,605 per job. As a result, it would take a total of 6,138,174 private-sector jobs to fund Oklahoma’s local bureaucracy—or five times the people currently employed by Oklahoma’s private sector in 2010.
Oklahoma’s state and local government employees combined earn a total of $13,945,463,000, making it the largest industry classification in the state. State and local government payrolls are larger than in other industry classifications such as manufacturing ($8,956,629,000), health care and social assistance ($9,835,170,000), retail and wholesale trade combined (10,081,381,000), professional and technical service ($5,249,492,000), and even the U.S. government civilian/military ($8,057,831,000).
Additionally, Oklahoma’s 289,575 state and local government employees make it the largest industry classification in terms of employment. State and local government employment is larger than manufacturing (133,623), retail and wholesale trade combined (274,942), health care and social assistance (207,452), and accommodation and food service (137,247).
In order to calculate the amount of taxes paid, we utilize the information provided by “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” published by the Institute on Taxation and Economic Policy (ITEP), a liberal think tank based in Washington, D.C. ITEP uses a “family income” (FI) concept which is likely very similar to the “adjusted gross income”(AGI) concept used on federal and state individual income tax forms. In order to derive FI, the average private sector wages and salaries ($38,779) were divided by 79 percent to approximate AGI (according to the Internal Revenue Service, wages and salaries constitute about 79 percent of AGI for those earning between $50,000 and $75,000). The resulting average FI was $49,070 per job in 2010.
The ITEP analysis shows that the effective tax rate for a taxpayer earning $48,850 is 8.9 percent, split 5.7 percent for state taxes and 3.2 percent for local taxes. Overall, the average private sector job paid $2,793 in direct state taxes and $1,574 in direct local taxes in 2010.
Dividing the average state government compensation per job ($49,455) by $2,793 yields 18 average private sector jobs needed to sustain a single state government job in 2010. Dividing the average local government compensation per job ($47,605) by $1,574 yields 30 average private sector jobs needed to sustain a single local government job in 2010.
Note: There are two important changes since our previous study in the June 2011 issue of Perspective. First, a mathematical error was discovered in adjusting for “family income” that underestimated income. This would have resulted in a lower worker ratio. Second, based on new data from the IRS, we’re using a higher wages and salaries/AGI ratio, which results in a higher worker ratio. Coincidentally, the two changes offset each other to yield the same ratios as the previous study.
The data presented on state and local government employment are from the Bureau of Economic Analysis (BEA). BEA employment counts may differ from Oklahoma state government data for several reasons: (1) The BEA counts the total number of state and local government positions (full- or part-time), whereas state government data are often expressed as full-time equivalents (FTE), i.e., two part-time employees are equal to one full-time employee. (2) BEA data give an annual, composite employment estimate using data from the U. S. Census Bureau, Bureau of Labor Statistics, and Oklahoma state agencies. For instance, BEA government employment is averaged for the entire year, whereas data from the Census are an employment snapshot taken in March. (3) There are classification issues. BEA data are designed to be comparable across states, which may mean adding or subtracting employees that may or may not be classified as state government workers by Oklahoma state agencies. For example, employees of the higher education system are often not counted as state employees, but they are counted as state employees by BEA.
Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.