Slowdown in Private Sector Jobs a Boon for State and Local Hiring

For the past two years, state and local governments have been a major force in the job market, hiring new employees at a pace not seen in decades and helping drive the nation’s overall employment growth as private sector hiring noticeably cooled. But as slowing revenue affects more states, cost-saving measures gain traction, and the federal government pulls back investment in key sectors, government job growth is becoming more difficult to predict.

Since January 2023, more than 1 in 5 new jobs in the U.S. have been in either state and local government or public education, which is over twice the scale of public sector job growth seen in the decade before the COVID-19 pandemic, according to an analysis of federal Bureau of Labor Statistics (BLS) data conducted by The Pew Charitable Trusts. The public sector hiring surge marks a clear turning point from the years immediately after the pandemic-induced recession, when states and localities struggled to staff up and accounted for fewer than 1 in 10 new jobs.

The shift in public sector hiring over the past two years also created a rare role reversal in which state and local government employment growth outpaced the private sector’s rate—a phenomenon not seen since the onset of the Great Recession in 2007. All told, states and localities have added more than 1 million employees since the start of 2023 and now employ more than 20.5 million people.

The latest annual employment numbers include BLS’s final revision released in February 2025, which eliminated more than 800,000 private sector jobs across 2023 and 2024 but had little effect on the public sector’s numbers.

The increase in government hiring has happened alongside a rapid reversal in the public sector’s typical lag behind the private sector in wage growth. In each year since fiscal year 2021, at least half of states have given employees across-the-board wage increases, according to the National Association of State Budget Officers’ spring survey. Federal data analyzed by Pew shows that public sector wage growth has been outpacing that of the private sector since mid-2023—the first time outside of a recession that this has happened in more than 30 years.

The reversal comes just two years after private sector wage growth exceeded that of governments’ by the largest margin on record. In early 2022, private sector wages rose rapidly in response to a tight labor market and rising inflation, making a full recovery from the pandemic by February of that year—more than a year ahead of government jobs. Total state government employment recovered in May 2023; localities needed until December 2023 to gain back the nearly 1 million jobs they lost in 2020, according to BLS data.

More than just the pay

Though higher wages tend to be the number one thing employees say their state and local employers can do to support hiring and retention, pay is not the only issue governments have had to address in recent years. According to a series of surveys by MissionSquare Research Institute, government employees experienced extreme burnout and high levels of stress during the height of the pandemic in 2020 and 2021. Those factors also hurt the government job recovery.

“There were a lot of employees in the public sector who looked at that situation … and the additional workload they were seeing as vacancies went unfilled, and it was just kind of a vicious cycle for a while there,” said Gerald Young, the institute’s senior researcher. “It was not an easy situation to improve, and salary increases in state and local government take time.”

In addition to salary increases, governments have increasingly adopted benefits such as child or elder care stipends and tuition reimbursement. More than half of state and local government respondents in a 2024 survey said they have adopted telework options for workers, up from 27% in 2020, and nearly 1 in 5 reported experimenting with a less-than-40-hour workweek for non-public safety positions. The survey also noted that governments are eliminating degree requirements for certain jobs and using social media for recruitment to expand their candidate pools.

Room to grow?

More people work in state and local government than ever, and the sector’s job growth over the past year and a half has been dramatic. But gaps still remain in government staffing.

Survey data shows that a little over half of government employers anticipate their largest-ever wave of staff retirements over the next few years, even as the number of job openings at the state and local levels remains at historic highs. Since the private sector job recovery in 2021, state and local government quarterly vacancies have regularly topped 800,000. The pre-pandemic peak was about 653,000, according to data from the St. Louis Federal Reserve.

Overall, state and local government jobs have not kept up with population growth, falling from about 15% of the labor market at the end of the Great Recession in 2009 to 13% today. This means that fewer workers are serving more people, which can have serious consequences for public service delivery. As economist Christian Weller has observed, “The results have been fewer academic offerings, less support for children of all ages, overworked and overwhelmed public safety employees … fewer inspections, less public safety, and less effective tax collections.”

Meanwhile, whether or how state and local budget belt-tightening will affect hiring going forward is unclear. Some states, such as New Jersey and New Hampshire, have instituted hiring restrictions or freezes in response to budget constraints. A handful of states, including Texas and Maryland, are pursuing operational efficiencies to save costs while others, such as Oklahoma and South Carolina, are exploring approaches modeled after the federal government’s Department of Government Efficiency. Moreover, reduced federal spending could affect state and local government employment, particularly in areas such as higher education and health care.

Final thoughts

Amid slowing national employment growth, state and local government job creation has remained a bright spot. In 2023 alone states added 89,000 jobs, excluding education, more than three times as many as they did in the five years leading up to the pandemic.

But changing economic conditions create a murkier picture going forward. Some state and local government leaders view the downsizing of the federal workforce as an opportunity to recruit new workers. “If there’s ever a time to bring mission-driven talent home, it’s now,” Kansas City Mayor Quinton Lucas and Caitlin Lewis, executive director of the nonprofit Work for America, wrote in a recent op-ed.

On the other hand, states with a concentration of federal employees and contractors could face revenue and spending constraints if unemployment ticks up. In Virginia, for example, home to nearly 145,000 federal workers and a substantial number of contractors, lawmakers are convening a panel to study the potential economic impacts.

Generally though, budget stress is now more widespread than at any time since 2020, and that may affect states’ ability to continue increasing wages, salaries, and bonuses. It remains to be seen for how long state and local governments can keep up their high pace of job creation and how the larger economic forces now at play will affect this part of their fiscal futures.

Liz Farmer works on The Pew Charitable Trusts’ Fiscal 50 project.