Hot in the news recently is the claim that the U.S. has become a nation of takers, not makers. The claim is based primarily on the fact that today in America there are nearly twice as many people working for the government than in manufacturing. Has Delaware also become a taker rather than a maker? The answer is mixed.
YES
First, Delaware has gone from 1.4 manufacturing jobs per government job in 1970 to 0.4 manufacturing jobs today. The ratio for all goods production jobs (manufacturing, agriculture, forestry, mining, construction, utilities) relative to government employment has dropped from 2.0 to 0.9 over the same time period.
Second, Delaware's economy has become far more dependent upon Federal transfer payments. Transfer payments have soared from 6.5% to 18.8% of Delaware personal income over 40 years. The major acceleration has been in Medicare and Medicaid transfers. Government transfer payments for healthcare have gone from 28% to 91% of Delaware health industry earnings.
Retirement (Social Security) and disability transfers have risen from 3.7% to 6.7% of Delaware personal income and the pace is increasing.
Federal government grants and other payments to state and local government in Delaware have increased from 2.6% to 4.7% of Delaware personal income. Defense department payroll and contracts equal 3.3% of the state's personal income.
Third, the average compensation of government employees in Delaware over the 40 years has risen from 83% of the average compensation throughout the state to 109%. State and local government has gone from 91% to 103%. And this is despite the fact that over the past decade or more there has been essentially no increase in state and local government productivity in Delaware. Nor has productivity changed significantly in the government revenue dependent Delaware hospitals.
NO
First, due to extraordinary gains in manufacturing productivity, employment growth in Delaware and the U.S. over the last 40 years has been concentrated in services. To claim that this is a step backward is to assert that information services and neurosurgeons do not add value. Over the past decade or so productivity (output per worker) in information services in Delaware has risen 115% and productivity in the state's large finance and insurance industry is up 41%.
Second, government's (Federal, military, state, local) share of total Delaware employment has fallen over 40 years from 18% to 14%, although state and local government's share has remained steady.
Third, state and local government taxes and Federal taxes have fallen as a percent of Delaware personal income over the four decades.
What is the bottom line? Increased dependent on the flow of funds out of Washington, D.C. at a time when national government debt is soaring is risky. To avoid increased dependency on the solvency and largess of the Federal government, Delaware needs to focus upon growing industries with high rates of productivity and productivity growth...regardless of whether those industries are in the production of goods or the provision of services. And to have public schools that graduate workers with the skills necessary to be enhance productivity.
Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis
johnstapleford@caesarrodney.org
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