Alaskanomics

Who Earns More: Private or Public Workers?

Research Matters No. 109. Who Earns More: Private or Public Workers?  Mouhcine Guettabi and Andrew Bibler, both assistant professors of economics at ISER, recently looked at how the paychecks of people who work for private businesses in Alaska compare with those of people who work for state and local governments here. Using Alaska Department of Labor data from 2001 through 2016, they found:   • Average earnings are higher in the private than the public sector, across all occupations. That's because men earn more than women, and men make up a bigger share of the private work force—55%, compared with 43% in the public sector.     • Men who work for state and local governments earn on average about $2,000 less per quarter than men working for private businesses. The reason why is that overall, men who take public-sector jobs start out at considerably lower wages—and their wages don't catch up over time, even though they increase somewhat faster than private wages.   • Women working for state and local governments earn on average about $500 more per quarter than women in private-industry jobs. That's because overall, the starting salaries for women in public and private jobs are similar, and salaries for women in public-sector jobs grow faster as they spend time in their jobs.   • But for individual occupations, there is considerable variation in these overall patterns, among both men and women. For some occupations, the gap between public and private pay is larger or smaller to start with, and it can narrow or widen after people have been in their jobs for years.  Download Public and Private Sector Earnings in Alaska (PDF, 619.3KB), prepared for the Alaska Department of Administration, by Mouhcine Guettabi and Andrew Bibler.

Second Quarter Job Loss Hits All Regions of State

By Scott Goldsmith

Final data on employment thru the 2^nd quarter of 2017 from the Alaska Department of Labor shows that all regions of the state lost jobs in the 2^nd quarter compared to a year earlier.  The statewide rate of decline so far has been 1.7 percent this year compared to 1.4 percent last year.

The performance of Anchorage, the largest labor market, followed by that of the state.  Fairbanks and Kenai had larger percentage declines last year, probably due to the large loss of petroleum related jobs.  Matsu and Juneau are experiencing more rapid rates of decline this year than last year.  Significantly, employment growth in the Matsu turned negative for the first time in the most recent quarter.  The rest of the state has seen a more rapid rate of job loss both years than any of the larger labor markets in the state. 

Job Loss Slows in 2nd Quarter

By Scott Goldsmith

Final data on Alaska employment by industry thru the 2nd quarter of 2017 (Alaska Department of Labor) shows the job loss slowing in the 2nd quarter.

The slowdown in overall job loss is primarily due to reductions in job losses in the Oil and Gas and Other sectors.  Other is composed primarily of support sectors like retail trade and transportation and other services.  (It excludes oil and gas, business services, construction, state government, and health.)

Notably, losses in the construction sector have not yet diminished.  Health care continues to be the only sector reporting consistent growth in employment in the last year.

Note that job losses only began about a year after the drop in the price of oil in the summer of 2014.  Initially those losses were confined to the oil and gas and state government sectors.

How much is uncertainty costing the state of Alaska?

By Mouhcine Guettabi, Assistant Professor of Economics, Institute of Social and Economic Research UAA

Due to the decline in oil prices, the state has had to rely on savings to fund government for the last few years. The legislature has, however, not decided how it intends to fund government activity going forward. Given the size of the deficit and the paucity of non-oil sources, it seems that a draw from the Permanent fund is necessary.  While, understanding the potential short term effects from the imposition of taxes or government cuts seems to be fairly well understood, we try to quantify below the potential investment losses stemming from delaying a decision that provides fiscal stability.

What is the scale of private capital spending in Alaska?

While there does not exist a database of private and public capital spending by year for the state of Alaska, we have yearly construction forecasts which use as a proxy for these activities. In figure 1, we show that non-oil private spending between 2013 and 2017 declined by 410 million dollars. In figure 2, we show that O&G capital spending peaked in 2014 at 4.25 billion dollars and was only 2.43 billion in 2017. In other words, capital spending- including oil and non-oil- decreased by more than 2.5 billion dollars in the three years since oil prices declined.

Figure 1: Private sector construction spending (No Oil and Gas) between 2013 and 2017

Figure 2: Oil and Gas construction spending between 2013 and 2017

Is there any academic evidence linking uncertainty and investment?

Baker, Bloom, and Davis (2013) construct a novel index of economic policy based on a diverse array of metrics, performing tests of the index’s validity through a human audit of 3,500 newspaper sources and other common-sense measures. They find that the increase in policy uncertainty that followed the onset of the Great Recession had significant negative effects on aggregate investment and on employment as well as on consumption expenditures. Matching firm-level data with the data series of this index, Gulen and Ion (2013) find that economic policy uncertainty can explain up to 32% of the drop in corporate investment over the 2007-2009 time period.

Do we know anything about the effect of uncertainty at the state level?

Gao and Qi (2012) find that municipal bonds issued by state governments immediately before a gubernatorial election pay a premium of 6 to 8 basis points due to this electoral proximity. Jens (2013) estimates the investment-suppressing effect of a gubernatorial election on the state-level investment during the quarter of the election at between 5% and 15% depending on the subsample, with the closeness of an election exacerbating the decline.

Does the information above allow us to determine how uncertainty affects the Alaska economy?

Private Construction spending in 2017 is supposed to be around 4 billion dollars. Using the 5 to 15% estimated by Jens (2013), we would conclude that the direct effects of policy uncertainty is costing the state somewhere between 200 and 600 million in private capital spending. The decline in spending due to policy uncertainty would indicate that waiting is not a costless option. In fact, the losses due to uncertainty are important and similar in magnitude to the ones the economy would experience due to a tax or further government cuts.

Table 2 Capital spending in billions in Alaska between 2012 and 2017[1]

		2012	2013	2014	2015	2016	2017
Private
	Oil and gas	3.152	3.638	4.255	3.84	3.125	2.43
	Mining	0.34	0.33	0.205	0.21	0.18	0.187
	Other basic	0.01	0.02	0.076	0.025	0.104	0.13
	Utilities	0.794	0.83	0.851	0.68	0.459	0.498
	Hospitals	0.325	0.229	0.23	0.24	0.195	0.336
	Other commercial	0.12	0.15	0.17	0.135	0.15	0.15
	Residential	0.4	0.44	0.48	0.415	0.329	0.277
Private sector  total   total		5.141	5.637	6.267	5.545	4.542	4.008
Public
	National defense	0.46	0.209	0.395	0.435	0.552	0.635
	Highways	0.585	0.824	0.765	0.755	0.705	0.629
	Airports	0.375	0.479	0.425	0.465	0.387	0.37
	Alaska Railroad	0.055	0.024	0.023	0.025	0.026	0.022
	Denali	0.02	0.013	0.009	0.01	0.01	0
	Education	0.408	0.497	0.477	0.465	0.406	0.212
	Other federal	0.207	0.245	0.3	0.255	0.253	0.255
	Other state	0.474	0.45	0.515	0.555	0.422	0.322
Public sector total		2.584	2.741	2.909	2.965	2.761	2.445
Overall total		7.725	8.378	9.176	8.51	7.303	6.453

[1] We use the forecast figures from the construction forecast produced by ISER to proxy for actual capital spending.

References:

Baker, Scott R., Nicholas Bloom, and Steven J. Davis (2012), “Measuring Economic Policy Uncertainty,” manuscript, Stanford University.

Gulen, H. and Ion, M. 2013. Policy Uncertainty and Corporate Investment. Purdue University mimeo.

Jens, C. 2017. Political uncertainty and investment: Causal evidence from U.S. gubernatorial elections. Journal of Financial Economics 124:563-579.