Why hasn't U.S. recovered all the jobs lost during COVID-19? Because local governments can't attract workers.

  • Businesses have been more than pulling their weight in the nation's struggle to recover all 22 million jobs wiped out in the spring of 2020 .
  • But the number of jobs in the much smaller public sector remains well below its pre-COVID peak.
  • State and local governments are struggling to attract workers.

Businesses have been more than pulling their weight in the nation's struggle to recover all 22 million jobs wiped out in the spring of 2020 because of COVID-19-related shutdowns.

The public sector?

Not so much.

In June, the private sector not only reclaimed its pre-pandemic employment level but blew past it by 140,000, the Labor Department said in its latest jobs report. Yet that still left U.S. payrolls 524,000 jobs short of their pre-crisis mark.

The culprit is the much smaller public sector, which remains 664,000 jobs below its peak before the pandemic. Don’t blame the federal government, a frequent target of Americans’ ire, which is just 8,000 positions shy of the threshold.

Rather, state and local governments are behind the shortfall – mostly the latter. States are 57,000 jobs, or 1.1%, below their benchmark, and cities and towns are 599,000 jobs, or 4%, short.

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Cities are struggling to hire bus drivers, among other workers.

The gaps are translating into reduced services for millions of Americans, including transportation, health and public safety, as well as delayed road repairs and other projects, according to officials at the National League of Cities and the National Association of Towns and Townships.  

Though the U.S. is likely to recoup all the lost jobs by August, states and localities face a longer slog. Amid widespread labor shortages, they’re having a much tougher time attracting and retaining employees than businesses, largely because of lower wages and a reluctance to embrace remote work and more flexible hours, analysts and government associations say. Job candidates have been seeking such flexibility for years but especially since the pandemic.

“Worker attraction and retention is certainly a major factor,” says Clarence Anthony, CEO of the National League of Cities.

It took state and local governments about a decade to recover the several hundred thousand jobs they lost in the Great Recession of 2007-2009. Back then, however, the main issue was funding the jobs as property tax income plunged during the housing crash while other revenue slumped as households slashed spending.

Budget crunches are less of a factor in today's recovery. Consumer spending has been strong, and the American Rescue Plan of 2021 distributed $350 billion to state and local governments, adding to substantial aid earlier in the pandemic.

Some cities and towns are still struggling to balance their budgets, says Mike Koles, president of the National Association of Towns and Townships, which represents smaller communities. The federal assistance, he says, can finance capital improvements and other projects, but officials are reluctant to use the windfall for recurring expenses such as salaries because the funding won’t be renewed.

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And after making small budget cuts for years to avoid property tax increases, local officials have little else to chop. “The fiscal pressures that have been building … over the years have finally caught up with them,” Koles says.

Meanwhile, inflation, which is at a 40-year high, has hammered local governments that must buy gasoline for trucks and materials for road repairs, he says.

Inflation, which is at a 40-year high, has hammered local governments that must buy gasoline for trucks and materials for road repairs.

The bigger problem, though, is recruiting and keeping workers, officials say. Hundreds of thousands of government workers were furloughed early in the pandemic, and many haven’t returned because they retired early or quit to work in more lucrative and flexible private-sector jobs. Since then, thousands more public-sector employees have joined them because of COVID-19 concerns, pandemic-related burnout or other reasons.

The retirement rate for police departments increased 45% in the 12 months ending in March 2021 compared with 2020, according to a survey by the Police Executive Research Forum and a report by Pew Charitable Trusts. And 52% of state and local workers were considering changing jobs, retiring or leaving the workforce, according to Pew and a December survey by MissionSquare Research Institute, which studies state and local government issues.

Annette Smith, of Tucson, Arizona, quit her $50,000-a-year job as an executive assistant to a high-ranking state official in June 2020 because she was ordered to return to the office despite having lupus, an underlying health condition.

Now, she’s seeking a similar position at a law firm that she says would pay $70,000 but require fewer responsibilities because she wouldn’t have to supervise other secretaries.

"Government wages are stagnant and not competitive with the private sector," says Smith, 56.

Even more important, she says, is the ability the private sector would offer to work remotely at least part-time.

In May, there were 910,000 state and local government job openings and 198,000 such workers quit jobs, Labor data show. Both figures are just below recent record highs. And they underscore that the public sector broadly wants to add workers but is struggling to do so, says Mike Maciag, a Pew research officer.

Here’s why:

Wages are lagging

In the first quarter, private-sector wages and salaries rose 5% from a year earlier while state and local government pay increased 3.1%, according to Labor’s Employment Cost Index. Last year, as employers raised pay to battle COVID-19-induced labor shortages, the gap between private- and public-sector wage growth widened to the largest in four decades, according to a Pew study.

“Wage growth for private-sector workers is far outpacing state and local governments,” Pew’s Maciag says.

Unlike businesses, governments aren’t very nimble, especially during economically volatile times. Proposed pay increases often must be approved by elected officials, which delays any increases, Maciag says.

Governments are also hesitant to commit to recurring rises in future expenses when they’re uncertain of their revenue, Maciag and Koles say.

And about half the states have at least some unionized workers, which makes pay increases subject to bargaining and contract renewals, says Leslie Scott, director of the National Association of State Personnel Executives.

Though most states have increased wages during the pandemic, it’s not unusual for them to maintain existing wages for several years, Scott says.

While the U.S. is likely to recoup all the lost jobs by August 2022, states and localities face a longer slog. Amid widespread labor shortages, they’re having a much tougher time attracting and retaining employees than businesses.

Benefits no longer provide edge

State and local governments historically have made up for their lower wages by providing better benefits. But government pensions and generous health plans are being phased out, and employees are required to contribute more to premiums and deductibles. That has put government benefits roughly on par with the private sector, Koles says.

Slow to embrace flexible work options

Although most businesses are allowing employees to work remotely at least some of the time, state and local governments have been more reluctant to break from tradition, Maciag and Koles say.

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Some customer service, health and public safety jobs require employees to be at the workplace, and officials are hesitant to set different policies for different agencies, Maciag says. They worry that workers may try to switch to departments with more lenient standards.

Many government officials are less willing to let workers adjust their hours to accommodate family obligations or other personal matters, experts say.

Hiring bonuses less common

Many businesses are offering job candidates hiring bonuses of $1,000 or more. Some public safety agencies are providing similar perks, Maciag says. But other agencies don’t have that capability.

Applying for a job can be a hassle

Many businesses have shortened hiring regimens that used to take weeks or months to days and simplified lengthy job applications to just a few questions so they don’t lose workers to rivals.

But state governments have been slow to make such changes, says Scott of the National Association of State Personnel Executives.

Offering remote work, one-time bonuses

Some state and local governments are departing from decades-old practices and matching the private sector's enticements, including allowing remote work and flexible hours. 

In Florida, Collier County is providing one-time $2,000 bonuses for emergency medical service employees for their work during the pandemic, according to the National League of Cities.

And cities such as Baltimore; Seattle; St. Louis; Albuquerque, New Mexico; Reno, Nevada; and Durham, North Carolina, are using some of their federal aid to provide premium pay to essential workers during the health crisis, the league says.

To fill about 200 officer openings, the Minnesota Department of Corrections began offering new hires $5,000 bonuses if they stay for two years, according to Pew.

The perk generated a fivefold increase in applications in December.