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R e s e a r c h D epaurteaeiiaft Fedlem S R e s e rv e i ora D ecem ber 28,1973 E tcitj hW t brkeir m S The public sector has been one of the fastest growing sectors of the economy in recent decades, and today one of every six workers in the workforce is a public employee. Government employment encom passes most of the blue-collar occupations found in private indus try, and it covers a diverse group of white-collar specialties, ranging from doctors, scientists, engineers, and accountants to secretaries and clerks. Total government employment has doubled over the past two decades, rising at a 3.5-percent annual rate as against only a 1.7-percent rate of gain in private employment. Almost the entire increase, however, has come in state and local government. Federal civilian employment has grown just over 10 percent in the past 20 years, to 2.6 million. Federal jobs reached 2.8 million in 1969— not far below the World War II peak— but have since been on a declining trend. In contrast, state-local employment has in creased one and a half times in this time, growing every single year to a total of 11.3 million today. But a slowdown in this growth trend is now apparent, because of the weak ening of several factors which caused the earlier upsurge. W here they work The state-and-local category covers a number of layers of government. According to a Census survey, about one-fourth of the total are state employees— 2.9 million in 1972. But school districts represent the largest single type of governmental unit, with 3.5 million employees in 1972. Most of the remaining local employ ees work at the municipal (2.3 mil lion) or county (1.3 million) levels of government. Most Federal-government functions have no counterpart at the state or local level. National defense and international relations account for about 40 percent of all Federal jobs, and the postal service (now a public corporation) accounts for roughly 25 percent more. These functions, plus space technology and atomic research, are the exclusive preserve of the national government. On the other hand, some Federal occupa tions have a similar function in other branches of government— occupa tions having to do with naturalresource management, for example. Some public services are as unique to local levels of government as national defense and the postal ser vice are to the Federal level. This group—funded mostly by counties, municipalities, and special districts — includes local fire protection, sanitation and sewerage, utilities, parks and recreation. About 1.1 mil lion are employed in such activities, roughly as many as the Federal gov ernment employs in national de fense. Employment is greater, however, in health services, high ways and police protection— categories that have counterparts at the Federal level but are predom inantly state and local by nature. (continued on page 2) Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco, nor of the Board of Governors of the Federal Reserve System. Nearly 1.3 million persons are em ployed in the provision of public hospital and health services. Most of these work for state governments, and close to 90 percent of the total are employed at either the state or county level. The states' predom inance in this field is related to the fact that states are the largest em ployers in public higher education, and to the fact that most state uni versities maintain medical schools with affiliated teaching hospitals. Thus, to some extent, higher ed ucation and hospitals are a joint product. Most public hospitals are either for chronic diseases, usually operated by states, or for emergency and general care, operated by counties or municipalities. State governments employ almost one-half of the 610,000 persons en gaged in highway work, while cities and townships employ about twothirds of the 581,000 engaged in police work. The states account for about one-ninth of all police jobs, and these are employed mostly in highway-patrol work. Education boom Public education, however, with its 5.6 million employees, is the largest single governmental function— and until recently was the fastest-grow ing category. The educational estab lishment employs people in a number of occupations, but only 63 percent of the total are "instruc tional personnel"—that is, teachers. Public education runs from kinder garten through graduate study at universities, but there is a distinct separation between the levels of government involved. State govern ments employ almost 1.3 million, practically all of them at the college and university level. School districts employ 3.5 million persons, mostly in elementary and secondary educa tion. However, 220,000 of the school-district employees work in higher education, generally in jun ior or community colleges with a two-year curriculum. Employment in public education rose at a 5.7-percent annual rate over the past two decades, while other public employment increased at only 2.1-percent annual rate. (Higher-education employment in creased five-fold over this period.) Education's greatest growth came in the 1957-68 period, under the stim ulus of demographic factors and expansive Federal aid. By the late 1950's, the postwar baby boom was making its impact on the local schools, while the National Defense Education Act of 1958 (passed in the early post-Sputnik era) was making its mark on higher education through research grants and assis tance to students. More students went to college and they stayed longer; between 1957 and 1972, the size of the annual Ph.D crop rose from 6,500 to 30,000. W hy a slowdown? The factors that caused the publiceducation boom have weakened in recent years, however, and the an nual growth rate of employment thus dropped to 4.2 percent over the 1968-72 period. The postwar baby boom has pretty much worked its way out of school and into the labor force. Federal-research-anddevelopment expenditures, a major source of support for graduate stu dents, have now levelled off after rising almost exponentially for a decade or more. Government employment should continue to increase in coming dec ades, but the gains may be consid erably smaller than in the past two decades of rapid growth. We may witness a continuation of the al ready evident slowdown (or actual decline) in the two dominant Fed eral activities— national defense and the post office— and in the dom inant state-local activity— public education. On the other hand, strong further gains can be expected in several sectors which account for 16 percent of total public employ ment; these sectors include health and hospitals, police protection and public welfare. The recent slowdown in publicemployment growth helps account for the much improved fiscal situ ation of both the Federal and statelocal sectors. State-local governments in particular are in excellent fiscal shape, with the ob vious exception of some major cities and the improvement was evident even before they began to receive revenue-sharing funds late last year. The state-local sector recorded a $7.0-billion surplus (annual rate) in the pre-grant period of 1971-72, and then a $13.8-billion surplus— with the help of $8.3 billion in revenue sharing grants— over the latest fourquarter period. (Grant funds, which had originally been allocated mostly to capital projects, are now being directed increasingly toward current expenditures and tax relief.) Such unparalleled strength is unlikely to continue, if for no other reason than taxpayers' demands for tax relief, but the state-local fiscal situation should remain considerably health ier than it was in the period of rapid employment growth. Herbert Runyon U(n8uii|$e/v\ •m •uoSte.10 *epeAafsi. oqep| ?*n ijbmph • ciujo/ijo • euozjjy • e>jse|v l ® 'ODSpUWJ ue$ f ZSL ON lltMHd OlVd iOVXSOd s o 1IVW SSV1D JLSNIJ BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT (Dollar amounts in m illions) Selected Assets and Liabilities Large Com m ercial Banks Loans adjusted and investments* Loans adjusted— total* Securities loans Com m ercial and industrial Real estate Consum er instalment U.S. Treasury securities O ther securities Deposits (less cash items)— total* Dem and deposits adjusted U.S. Governm ent deposits Tim e deposits— total* Savings O ther time I.P.C. State and political subdivisions (Large negotiable CD 's) Weekly Averages of Daily Figures Am ount O utstanding 12/12/73 Change from 12/5/73 Change from year ago D o llar Percent 77,785 58,944 1,335 20,435 18,085 8,915 6,083 12,758 73,194 22,243 428 48,946 17,380 22,251 6,255 10,816 + 1,146 + 793 + 106 + 258 + 74 + 29 - 133 + 486 + 937 57 51 + 817 71 + 79 + 670 + 327 + 9,856 + 9,414 79 + 2,932 + 3,149 + 1,275 + 1,875 + 1,399 + 7,143 + 801 + 116 + 6,073 - 717 + 5,414 + 566 + 4,079 W eek ended 12/12/73 W eek ended 12/5/73 + + + + + + + + + + + + + + 14.50 19.01 5.59 16.76 21.08 16.69 26.63 12.32 10.81 3.74 37.18 14.17 3.96 32.16 9.95 60.55 Com parable year-ago period Member Bank Reserve Position Excess reserves Borrowings Net free ( + ) / Net borrowed (— ) 33 101 68 66 293 -2 2 7 - + 1,396 + 820 + 620 + - + 173 - - 27 29 56 Federal Funds— Seven Large Banks Interbank Federal funds transactions Net purchases ( + ) / Net sales (— ) Transactions: U.S. securities dealers Net loans ( + ) / Net borrow ings (— ) 106 17 * Includes items not shown separately. Inform ation on this and other publications can be obtained by callin g or w riting the Digitized for F R A S E R nistrative Services Department. Federal Reserve Bank of San Francisco, P.O. Box 7702, http^/fraser.stloUisfef.O g / «sco, California 94120. Phone (415) 397-1137. Federal Reserve Bank of St. Louis » e