Another look at Federal employment

Back in September of 2011 at Business Insider, Doug Short looked at The Incredible Shift From Manufacturing To Services In America:

I spent some time this morning studying a topic I've occasionally mentioned: The shift in the United States from a manufacturing to a services economy.

 The Department of Labor's Bureau of Labor Statistics has monthly data on employment by industry categories reaching back to 1939. The first chart below is an overlay of the compete series of employment numbers for the two major categories, manufacturing and services.

When I say major, I'm referring to the complete domination of the labor market by these two industries. To illustrate this fact, I've also included the total of the two categories and a dotted line showing total nonfarm employment.

An impressive chart. Manufacturing is the red line down at the bottom. Services is the blue line up near the top. The dotted gray line is manufacturing and services together. And the green is all employment. Scarcely any room between green and gray. Most jobs are either in manufacturing or in services.

Most of them in services, according to the blue line. Not much going on with manufacturing, dragging along the bottom there, red with embarrassment.

I got wondering how the Federal employment numbers compare to manufacturing employment. Both are shown relative to the size of the economy, same as I showed yesterday. Have a look:

Graph #2: Manufacturing (red) and Federal (black) Employment-to-RGDP Ratios

Manufacturing (red) appears to have fallen much more rapidly than Federal government employment. But Federal employment (black) is a much smaller number, so appearances may be deceiving. To get a better idea of the relative decline, we can look at manufacturing employment relative to Federal employment:

Graph #3: Manufacturing Employment relative to Federal Government Employment

Now there isn't such a steep decline. The ratio runs almost flat, between 6 and 7, from 1950 to 1980. It falls below the 6 level in the mid-1980s. But manufacturing recovered in the 1990s, and the ratio climbed up above 6 again. Stayed there until 2001.

Manufacturing employment has fallen significantly faster than Federal employment since 2001, the graph shows. But for the whole second half of the 20th century, it was almost neck-and-neck. Manufacturing employment and Federal employment fell at almost the same rate. So where Doug Short speaks of an "incredible shift" away from manufacturing, we could as easily speak of an incredible shift away from Federal employment. But no one speaks of such things.

Remember, too, that Graph #3 shows the ratio running largely between 6 and 7. That means manufacturing employment was 6 to 7 times the size of Federal government employment, consistently, until the 21st century.


It was pretty easy to duplicate Doug Short's graph at FRED. I even tried to make the colors match. Then I added a dashed black line to show Federal employment. It runs way down at the bottom, a mere fraction of manufacturing (red) employment. If I didn't point it out, you might not even notice it:

Graph #4: Federal Employment (dashed black) Barely Above Zero

Since the end of the Korean war, Federal employment doesn't even wiggle.

Compare the lowest line to the highest line: Compare Federal employment (dashed black) to All employment ("Total Nonfarm Payrolls", green):

Graph #5: Federal Employees as a Percent of All Employees

Set World War Two aside, and the Korean war. The ratio runs reliably between 4% and 5% from the late 1940s to 1970. But it is gently trending down, and reaches the 4% level around 1970. The downtrend continues; after the very early 1970s the ratio is never again close to the 4% level. Since 2000 it has been running at the 2% level -- half what it was in 1970. And remember, Federal employment has been falling damn near as fast as manufacturing employment: "incredibly" fast.

Two percent of the workforce is employed by the Federal government today. Four and a half percent of it, give or take, was employed by the Federal government in the 1950s and '60s, back when our economy was good. If there is a problem with our economy, that problem cannot be the excessive size of the Federal government. The problem lies elsewhere.