How many federal government employees can you feed?

Every dollar paid to a government employee first needs to be collected from private sector worker. It is a given that government workers don't really pay tax. For example, if the average tax rate government workers pay is 25%, to collect a dollar of tax revenue from a government employee, the government first needs to raise $1/0.25 = $4 from a private sector worker, pay that to the government employee and then collect the dollar. Of course, the tax laid on the private worker increases the wedge between the productivity of the private sector worker and her cost to her private sector employer, creating a social welfare loss. In addition, every stage of the tax collection process has deadweight loss associated with it.

Therefore, it is best to achieve the smallest size government that can do the jobs we expect a government to do: Protect national security, provide law and order, and enforce property rights. The rest can be more efficiently taken care of in the private sector.

It seems some think we have a shortage of government sector workers. Since President Obama runs the Federal Government, let's look at the relative size of federal government employment versus private sector employment over the years.

The following graph shows the employment level in the private sector divided by the employment level in the federal government over the years. I obtained the data from the BLS. Both series are not seasonally adjusted values for January. Looking at other months also produced similar patterns except that every ten years you get spikes in Federal employment near May due to the Census.

The vertical axis is inverted so that periods over which federal government employment is becoming smaller relative to private sector employment correspond downward sloping portions of the line.

In the early 1980s, we have about 25 private sector workers supporting each federal government employee. Over the second term of Reagan and the subsequent Bush Sr. presidencies, we are up to about 29 private sector workers per federal employee (remember, larger number is better because the burden of federal employee is spread over a larger number of private sector workers). By the time Clinton leaves office, that number is up to 40 private sector workers per federal employee. This huge shrinkage of the federal workforce relative to the private workforce is due to two main factors: The tech boom and welfare reform.

During W's term, post September 11, we get the contractionary aftermath of the attacks, and the subsequent TSA expansion. Still, by January 2008, we have almost 42 private sector workers per federal government employee.

By July 2010, that number was down to 35 private sector workers per federal employee. Following the Tea Party elections in 2010, the January 2011 figure is 37, January 2012 is 38, and July 2012 is 39.5.

So, change is happening in the right direction of making the footprint of the federal government on the private sector smaller. Of course, this is but one facade of that burden. Government expenditures and federal debt are other aspects, and those are scarier fronts.

To pretend therefore that "the private sector is doing fine" and there is a government jobs problem is folly.