A senior fellow at the Manhattan Institute finds that pension costs create fiscal volatility and that the current approach to financing public pension debt results in lower state and local government staffing levels.

A recent report draws a connection between pension debt and a continued lag on state and local governments hiring workers to replace those lost during recessionary layoffs.

As Stephen Eide, Senior Fellow at the Manhattan Institute, describes in his report, Guaranteed Volatility: Pension Costs and State and Local Staffing Levels,

Since the end of the Great Recession in June 2009, U.S. state and local governments have faced pension costs that are rising at a rate above revenues; state and local governments have also faced diminished staffing levels. By 2016, U.S. private-sector job levels had long returned to pre-financial-crisis totals; yet state and local government staffing remains lower than it was in 2008.

According to Eide, the data shows that state and local pension debt is keeping the costs of governments high, even though their staffing levels remain low. In the private sector, when pension costs are not as prevalent, hiring has rebounded. Eide clarifies the public/private divide on pensions, writing,

The unique severity of America’s most recent downturn could account for why state and local jobs have been slower to bounce back than after the dotcom or 1990–92 recessions; but the harshness of the downturn does not explain the huge gap between private and government payroll rates of growth.

Instead, consider the role of rising retirement-benefit costs. Some 84 percent of state and local workers have access to defined-benefit pensions, compared with only 18 percent of private-sector employees.

The Key Findings of the Report include,

2. Private payrolls began growing in March 2010; in February 2014, they surpassed their prerecession peak and have since grown by 5 million.
3. State and local payrolls only stopped declining in 2013; state and local governments currently employ over 500,000 fewer workers than they did in 2008.
4. Because of pension debt—the costs of the past—reduced staffing does not necessarily connote smaller government; the cost of state and local government, a more useful measure of size than staffing, will have to remain high for as long as governments must grapple with massive pension debt burdens.

For more information, see the full report, Guaranteed Volatility: Pension Costs and State and Local Staffing Levels.