A short time ago, the most creative and driven minds targeted not just the private sector, but the riskiest part of that sector: Internet startups. Much to the chagrin of their parents, these highly motivated individuals were even willing to drop out of top schools to do it. Many of these minds struck gold and made all of us better off in the process. The new technologies they introduced created new ways to communicate, read the newspaper, do business, go shopping, and decide where to eat. The wild west attracted both foreign and domestic investors, and made many of them rich too. Risk and innovation were nothing new to America, more a way of life. Today, however, our culture may be changing.
Two years ago, articles by Business Week and Wall Street Journal (among others) cited the remarkable interest in government jobs…among MBA students. According to the Wall Street Journal, the Director of Career Management at the Wharton School remarked it was “a new phenomenon” to see her school’s students show interest in government employment. This interest was probably driven by a dearth of more traditional MBA recruiters offering employment, though some commented it may have been partly due to enthusiasm surrounding the newly-sworn Obama Administration.
Undergraduate students are also taking a second look at employment with Uncle Sam. Universum’s “Ideal Employer Survey” (56,900 student respondents at 345 universities) ranks potential employers according to student preferences. While big name private sector companies still dominate the rankings, respondent changes from 2009 to 2010 suggest potential recruits increasingly consider the U.S. Government to be an ideal employer. Among undergraduate business students, the FBI’s ranking climbed from 15 to 11. The Federal Reserve from 24 to 22. The IRS from 29 to 23. The Department of State held steady at 20. The Department of the Treasury showed up at 18 after not appearing in the 2009 survey’s top 100.
Are these surveys indicative of a broader trend? The Wall Street Journal recently compared the number of government employees (22.5 million) with the number of manufacturing employees (11.5 million) in the U.S. It observed that this approximately 2-to-1 ratio is a near exact reversal since 1960. Manufacturing might be expected to show payroll reductions due to increased efficiencies introduced over the past 50 years, but the overall change in ratio cannot be explained by this alone. Instead, much of the change is due to increases in U.S. Government payroll. The U.S. Government continues to add jobs and at an accelerated pace. Since the start of the Great Recession in December 2007 through March 2011, the U.S. Government (excluding the U.S. Postal Service) expanded its employee headcount by 244,000 jobs, a 12% total increase over about 3.5 years. This growth rate dwarfs the 3.9% increase in U.S. Government payrolls during the prior 6 years, from the end of the previous recession in November 2001 through November 2007. The private sector, on the other hand, slashed head counts during the recession by as much as 10%, or 11.2 million jobs.
Broader effects of the U.S. Government’s hiring spree are evident in other economic data. Three years after the start of the Great Recession, the only major city to post notable year-over-year gains in the housing market (per the latest Case-Shiller Home Price Index) is Washington, D.C. That market, the land of government jobs, grew at a robust rate of 3.6%. San Diego placed second at a flat 0.1% growth rate. Other markets fear they haven’t bottomed out.
It’s difficult to fault students, anxious to pay off hefty student loans, for targeting safe and secure jobs at times when the Federal Government is among the few organizations offering employment. But is this ultimately good for economic growth? Although a safe bet for those who obtain it, the iron rice bowl includes negative consequences. Foremost, government jobs are hard to lose. Profitable or wasteful, the U.S. Government employee’s pay check is generally secure. This creates economic drag by preventing the economy from redeploying resources. Additionally, the iron rice bowl goes unfilled without tax revenues. Those tax revenues divert investment from the private sector, the realm of risk and innovation and the source that ultimately makes government jobs possible.