Studies from the New York Federal Reserve show that the “reservation wage” — the pay rate needed to induce workers back into the labor force — has escalated in that region to $71,000 in the last year, and that could price out many public employers whose ability to compete on compensation is constrained by inflexible, frugal pay schedules, tight budgets and anti-government watchdogs’ incessant pressure to hold down taxes. The New York statistic seems outrageously high for much of the nation, but it clearly indicates that entry-level government salaries alone will not attract most unemployed workers, even if there is still such a thing as psychic income for public service.
Leaders in public financial management tell me that their colleagues’ foremost staffing challenge is finding and recruiting entry-level talent. It’s a problem traditionally centered in education and public health services, but staff shortages now also challenge many departments across the board.
Historically, state and local governments have paid lower salaries than their private-sector counterparts but were able to attract workers with generous fringe benefits packages and the likelihood of more stable employment. They could post job announcements, wait for applications to roll in and then pick out the top candidates. But in today’s economy, governmental pay constraints and the agility of private-sector employers will continue to make it harder for public employers to attract desirable workers unless they carve out a strategic niche that turns the tables in their direction. Child-care access and benefits could be the key to unlock a latent talent pool.
A Strategic and Budgetary Challenge
This is not just a staffing problem to be assigned to the HR department; it’s a strategic and ultimately a budgetary challenge that requires top-down focus and commitment. This may require outlays that go beyond offering reimbursements or allowances as fringe benefits. It may require governments to provide resources and facilities for child care as well.
The optimal child-care strategy will differ by location and employer. What works for school districts, which often have available classroom space along with proximity to their employees, probably will not work for police and fire departments or public works agencies where buildings were not designed for this purpose. What works in rural towns probably won’t work in urban center cities. What works best for a single municipality probably can’t work for a state government with a large capital-city footprint and multiple satellite locations.
Some public employers may need to sponsor or even build out their own day-care centers. Others might need to collaborate with nonprofit or for-profit preschool providers. Where taxpayers underwrite the payments to third parties, public agency managers should extract first dibs on access for their employees to provide an edge in the local talent chase.
Where employees are represented in collective bargaining, public managers and financial staff will need to weave through the issues of offering a novel benefit to new employees. It’s human nature for incumbent workers to expect a comparable benefit. How to add this new form of compensation is a challenge worthy of America’s best fiscal, civic and managerial masterminds.
One page from the Biden playbook would be to cap the employee benefit above a percentage of pay so it tilts favorably for lower-income workers. Alternatively, a “reverse seniority” benefit structure that favors new hires might be a savvy counter-intuitive approach to the recruitment challenge. Full subsidy benefits, regardless of income, could apply if an employee or their partner participates in a co-op day-care plan by contributing in-kind services to the program.
Getting the Word Out
Simply offering such benefits won’t be enough to assure success if potential workers are unaware of their availability. A marketing strategy and perhaps even a promotional budget will be necessary to get the word out locally so that homebound parents will start actively thinking about re-entering the workforce, hopefully with public service in mind. Public-sector professional associations, especially those that foster gender diversity and inclusion, could help by publicizing successful government child-care initiatives.
Before Congress completes its work on the budget reconciliation package, which is expected to include many of the elements of the White House families plan, state and local officials would be crafty and wise to press for tax exemption for child-care benefits paid by employers of newly hired public service workers. It’s the kind of policy tweak that the national teachers’ and service unions should support. That minor twist in the tax laws would provide a recruitment talking point and a competitive edge in the labor markets.
None of this will avoid controversy. Whether “human infrastructure investments” expand national GDP is open to debate and empirical study. What municipal progressives deem to be “investments” will look like lavish fringe benefits to hawkish conservatives. Don’t expect these strategies to sail through without some umbrage and local carping.
That said, in a world of remote working and flextime hours, governmental employers who need their staffs to be present in-person to serve their communities will need to exploit every competitive advantage they can muster in the race for talent. Public finance officials who grasp the big picture could play a leading role in the coming year as the labor market tightens further yet.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
