There was a time when both public and private employers could simply post job openings and wait for applications. Through history there were always more unemployed workers than the number of vacancies. After the Great Recession in 2008-9 the ratio was 6 to 1. Over the decade prior to COVID-19, the ratio declined steadily to 2018 when for the first time there more job openings than unemployed workers.

In 2020 there was a blip when millions lost their jobs but in the most recent government reports, there are 5.7 million people looking for jobs and 10.7 million open jobs in the U.S. The problem is captured in the data for “Not in the labor force” — that is people who ‘dropped out’ and are no longer working or looking for work – where the total increased by almost 5 million.

From 2019 to 2021, the age 25-54 dropouts – the prime working years – increased by roughly one million. The age 55 and older – the Baby Boomers — increased by 3.5 million. Year-end totals for 2022 have not been released but monthly data indicate older worker dropouts will be still higher. Significantly, the 55 and older dropouts account for over 95 percent of the increase.

Demographic data highlight the country’s problem — Baby boomers are dropping out at a time when fewer young people are entering the workforce. The result — the vacancy problem is projected to get worse.

For public employers, the combination of the best retirement benefits and an older workforce – close to 30 percent of government workers are 55 or older – should make the vacancies and loss of talent a priority.

The basic problem is that the worker scarcity enables job seekers to be highly selective in looking for jobs. Workers naturally opt for employers that have a good reputation, offer attractive work opportunities with fair pay and career prospects, and present themselves in an employee-friendly way.

An employer’s reputation is referred to as its brand. Public employers need to recognize their brand is not competitive. And they need to be open to emerging ideas for attracting fully qualfied applicants. The fading public trust of government has an unfortunate impact on recruiting young graduates. Recent reports claim even the graduates from the better public admin programs see consulting firms and other not-for-profit organizations as better career opportunities.

It Starts with Base Pay

Recent surveys consistently show a high percentage of workers continue to look for better jobs. Among the reasons for the change, career advancement with higher salaries is always prominent. One 2022 report shows the average increase for workers who changed jobs was 14.8 percent. The same report shows wage increases for the year averaged 5.8 percent.

In the private sector, pay increases are driven by economics – the supply and demand for worker skills. Jobs that are in high demand command the largest increases. That’s the reason of course technology specialists have enjoyed above average increases for decades.

Sketchy pay data show starting salaries also reflect the reputation of degree programs and worker skills. Graduates from the best college programs often earn higher salaries throughout their careers, sometimes despite mediocre performance. Workers in ‘knowledge’ occupations benefit from larger increases than those in low skill jobs. Better performing companies often pay above average wages to attract better talent. It’s economics and staffing strategies.

Starting after World War II, when unions gained bargaining power in the private sector, private sector pay levels started pulling ahead. From the earliest surveys in the 1960s, the salaries of college graduates working in government have been lower than in the private sector. Manual and office support jobs, however, are often paid better and that’s attributable to the continuing influence of public unions. Critics sometimes argue the costs of government’s ‘rich’ benefit packages should offset higher cash pay but following their logic would make salaries even less competitive.

Those are generalizations. Local wages and salaries depend on the industries, the financial success of local companies, local demographics, laws governing union-management relations, and influence of unions. Each local labor market is somewhat different. Living costs are often mentioned in bargaining but although highly correlated, costs are not a driver of salary increases.

Far too many public pay programs have been essentially unchanged for years. At the federal level, the only significant change in over half a century was the switch to locality pay in 1990. Companies modify their programs as needed to attract talent. Today’s corporate pay practices look very different than a decade ago.

Government pay programs generally differ from those in other sectors in five key ways.

• First, and possibly most important, there is broad coverage of occupations, with lower pay support jobs as well as those requiring degrees – that is both exempt and unexempt jobs — paid under the same program.
• Second, the politics of funding increases makes it difficult to gain support to stay competitive in years of higher market increases.
• Third, pay programs are often dictated by statute. It’s rare for politicians to agree on necessary changes.
• Fourth, political considerations cap the pay of elected officials and executives, creating compression as the salaries of managers and professionals increase over time.
• Fifth, the core program philosophy treats all workers the same, which precludes granting higher increases to workers in high demand jobs.

One of the complications is that many public sector jobs are unique to government. The ‘market’ pay data for these jobs is limited to other public employers. Averaging the two worlds leads to below market increases for some and above market increases for others. It’s mixing ‘apples and oranges’.

Despite the problems, the first step in understanding and addressing the vacancy problem is developing credible market pay data for the “benchmark” (or commonly defined) jobs found in pay surveys. In the end, pay planning depends on judgement.

Employee Benefits Are Very Different Today

Half a century ago the common benefit package was the same in every sector. It included a defined benefit pension plan, life insurance, medical insurance and paid time off for vacations and holidays. In the 1970s employers began adding savings plans but a few years later they dropped or froze their defined benefit plans to cut costs.

The career model in that era was also very different – workers in both the private and public sector took their first job after completing their education and stayed there for the next 40 years until it was time for them to retire. They got their gold watch and a small gathering on their last day wished them a happy retirement. “Retirement” meant they stopped working; it was earned by years of ‘hard work’.

That model no longer exists in the private sector. Careers are very different as well. The differences make comparisons of private and public sector benefits virtually meaningless. The differences in accounting and taxation add to the interpretation problems.

To highlight a core difference, the cost of a 401k or savings plan depends completely on employees deciding to have funds set aside each pay period. Many in lower pay jobs cannot afford to have regular savings deducted. The projected cost also depends on the vesting schedule – there is no cost when an employee quits before they are vested. That’s very different than a defined benefit plan.

Some years ago a “total compensation’ report from the Congressional Budget Office claimed “Average [federal] benefits were 52 percent higher for federal employees whose highest level of education was a bachelor’s degree”, and 93 percent higher for workers with only a high school diploma. The CBO author contends that should justify paying federal employees less. Conservative politicians must have liked that conclusion. The gaps would be higher today.

That argument ignores a couple of key points – (1) the typical government employee has longer service with the same employer and that drives up the actuarial costs, and (2) the traditional recruiting focus is on young workers who are far more concerned with being paid fairly than their retirement benefits. The argument also focuses on accounting costs, and ignores the problems and added operating costs when an employer has numerous job vacancies. Limiting costs is not the goal of effective recruiting.

More importantly, the past few years have seen a lot of innovation in employer-provided benefits. The changes were accelerated by the COVID crisis and working remotely, and are getting attention because ‘benefits’ are seen as tools to help with recruiting. The newer benefits include flexible work hours, childcare assistance, parental leave, employee discounts, free or discounted meals, commuter benefits, sabbaticals, nap rooms, gym memberships and others. The goal of course is to attract the best qualfied recruits.

There is no obvious answer for public employers. Benefit costs are high. But in the private sector millions of retirees now live with financial insecurity.

The key point — public employers cannot expect to attract the better qualfied applicants if salaries are limited by benefit costs.