Colorado's state workers create thousands of private-sector jobs as they serve the public
After the deepest economic downturn since the Great Depression, Colorado faces a severe revenue crisis. In the past three years, the state has addressed $4 billion in revenue shortfalls.1 This year, Colorado is working to fill another $1 billion budget hole. As the fiscal debate rages, Colorado’s state employees are often singled out as a potential source of budget savings. Indeed, Colorado has already reduced pay, imposed furloughs and eliminated positions to address the budget.2
However, further reductions to state workers would be a penny-wise, pound-foolish way to deal with the aftermath of recession and continuing fiscal challenges in Colorado. Economic modeling of classified state workers in Colorado’s economy shows that the work state employees perform benefits communities not only by addressing vital public needs but by creating private-sector jobs in the process.
The ‘double-dividend’
Colorado’s state workers play a unique part in the economy. First and foremost, state workers perform duties for the public, including protecting its consumers, building its infrastructure and running its safety-net programs. These public service investments create private-sector jobs. A “double-dividend” occurs as work by state employees spurs private-sector demand and as state employees spend their wages in the local economy.
For example, when the Colorado Department of Transportation repairs a state highway, the work requires materials and equipment supplied by the private sector such as gravel, tar and heavy machinery. When local businesses supply those inputs, increased demand prompts increased inventory and employment. Stimulus moves through the economy as newly hired workers spend their new incomes, and new orders to inventory prompt sales down the line.
Similarly, the state workers paid to make the repairs stimulate the economy by spending their wages on groceries, rent and other items in the private sector. That spending creates a “ripple effect” as described above.
Types of state workers: Classified and non-classified
There are several degrees of employment by the state of Colorado. Classified workers are state employees in the purest sense. They fall under the jurisdiction of the Colorado Department of Personnel and Administration, and they perform the quintessential duties of the state. Non-classified state workers range from contractors to college professors. According to the most recent count, there are 33,450 classified state employees.3
Measuring the effect of state workers
The impact of state employees can be measured using economic impact modeling software. The analysis uses employment totals by region and sector to examine how public-sector employees spur private-sector demand. Specifically, the analysis translates the work and wages of state employees into demand for private-sector goods and services, connects those demands with regional industries, and calculates economic multipliers associated with the transactions.
The results estimate the immediate impact of state employees on the private sector. They do not encompass any future benefits associated with enhanced infrastructure, public safety or regulated commerce which might enhance the state’s long-term economic climate.
The results are striking. In Colorado as a whole, state workers exhibit an employment multiplier of 1.6. In other words, for every state job, another 0.6 jobs are created in the state economy. That means Colorado’s 33,000 classified state employees create an estimated 21,000 private-sector jobs and $3 billion in private-sector activity as they serve their local communities. (Figure 1)
Impacts explained
Results are presented in stages of impact, including direct impact, induced gain, and total impact.
Direct impact: Represents the primary wave of employment and spending. The direct employment impact is the number of classified state employees in the state. The direct economic output impact is the value of services provided by state workers in the state. That includes the value of state employees’ wages, along with inputs like medical supplies for health workers, food distributed by human services employees, and gravel for Department of Transportation repairmen.
Induced gain: Measures secondary and tertiary spending. This stage captures the “ripple effect” of the direct impact. For example, it includes the impact of a state employee buying groceries using her salary, and the impact as the store distributes a portion of the money to suppliers and employees, who in turn spend a portion somewhere else. Induced employment tracks the jobs created in this process, while induced economic output tracks the output side.
Total impact: The sum of the direct impact and the induced gain.
Impacts by industry
A wide variety of industries experience increased employment and production as a result of Colorado’s state employees. Industries most affected tend to be related to consumer activity (rent, food, health care, etc). (Figures 2 and 3)
Why a consumer-powered impact?
State employees create the largest immediate private-sector activity by spending their wages. That is because state employees tend to provide services — like repairing roads, administering safety net programs and providing regulatory protection — rather than producing goods. As a result, labor inputs to state work (measured in wages) outweigh private-sector inputs of goods and services. That means the biggest outflow of demand (and job creation) from the public to private sectors associated with state workers comes when state employees spend their wages.
Of course, state employees also stimulate the private-sector when their work calls for private-sector inputs — for instance, when the Department of Transportation repairs a state highway and buys gravel from a local supplier. Overall, inputs to work by classified state employees tends to split about 60 percent labor, 40 percent private-sector inputs.4
A key part of Colorado’s future
State employees provide crucial services to Colorado. They maintain Colorado’s infrastructure, provide critical health care services, protect the most vulnerable, help run our schools and perform many other vital services. In doing so they also stimulate the private sector to the tune of 21,000 jobs and $3 billion. Amidst today’s fiscal troubles, it is important to remember state workers’ contribution to Colorado’s communities, its economy and its future.
Contact: Alec Harris
Policy analyst
303-573-5669, ext. 316
Released April 5, 2011
End notes
1 $0.8 billion in Fiscal Year 2008-09, $2.2 billion in Fiscal Year 2009-10 and $1.2 billion in Fiscal Year 2010-11. (Ritter, Bill, Letter to the Colorado General Assembly Joint Budget Committee, Office of the Governor, Nov. 1, 2010.)
2 Pay cuts: In FY 2010-11 all state workers received a 2.5 percent take-home pay cut in the form of a Public Employee Retirement Association (PERA) cost shift to offset the state’s PERA contribution. (Joint Budget Committee Staff, “Appropriations Report: Fiscal Year 2010-11,” Colorado General Assembly Joint Budget Committee; & Hickenlooper, John, Letter to the Colorado General Assembly Joint Budget Committee, Office of the Governor, Feb. 15, 2011.)
Furloughs: In FY 2009-10, many state workers stayed home for eight days which otherwise would have been work days. The state saved roughly $27 million. (Hoover, Tim, “Governor Ritter Adds Four Furlough Days in 2010,” The Denver Post, Oct. 28, 2009.)
Positions eliminated: Many state positions have been consolidated or eliminated in response to the fiscal crisis. For example, in the past two years the Colorado Department of Human Services reduced number of full-time equivalent positions by 3.4 percent or 187 jobs (from FY 2008-09 to FY 2010-11). (“Appropriations Report: Fiscal Year 2010-11,” Colorado General Assembly Joint Budget Committee.)
3 Classified employee count from: Information request, Colorado Department of Personnel and Administration, March 21, 2011.
For the most recent published data, see: Letter to the governor, Colorado Department of Personnel and Administration, March 15, 2011. www.colorado.gov/dpa/dfp/sco/pay/Pay.pdf
4 Study area data, IMPLANv3, Minnesota IMPLAN Group, Inc, 2011.
Methodology
Estimates for economic output and employment gains associated with classified state employees in Colorado are created using IMPLAN (IMpacts for PLANning) economic impact modeling software. The software uses empirically-derived regional input-output accounting to enable modeling of local industry changes. For more information, see the IMPLAN website: http://implan.com/v3/.
Estimates are derived in four steps.
Using Colorado as the study area:
1. Begin with the number of classified state employees in the study area, distinguishing between state non-education, and state education employees. (From Colorado Department of Personnel and Administration, March 21, 2011.)
2. Derive average employee budgets. In order to estimate the impacts of state workers, we calculate a per-employee budget for education and non-education workers. This is accomplished in three steps:
a. Begin with education and non-education employment levels.
b. Find total state education and non-education institutional spending. This is found using study area data included in the IMPLAN package.
c. Calculate an average per-employee budget. Divide (b) by (a). This gives the average state institutional spending associated with education and non-education employees, respectively.
3. Calculate a total state institutional budget associated with state education and non-education employees in the area. Multiply the average per-employee budgets for education and non-education workers calculated in (2.c) by the total education and non-education employment in the area. This gives the education and non-education institutional budgets associated with the state employment.
4. Model the education and non-education budgets as institutional spending patterns.
