IRS Data Confirms: Government employees depressing private sector wages

Beginning with Tax Day, Open the Books is releasing a set of deep dives into data released by the Internal Revenue Service, synthesized with additional public datasets. These findings come straight from Uncle Sam’s own ledger.

Across America, a persistent assumption shapes public policy: more government workers mean better public services, and better public services mean better outcomes for residents. More staff in schools, workers in social services, and employees managing infrastructure should translate to a higher quality of life for the people it serves. An analysis of 2,315 counties using data from IRS tax return migration records, Bureau of Labor Statistics payroll records, U.S. Census Bureau population estimates, and USDA poverty and income figures say otherwise. As Americans prepare file their taxes this week, it begs the question: Are those payments producing results?

Counties with the highest concentrations of government workers — defined as more than 1.5 times the national median of 58.9 civilian government employees per 1,000 residents — have significantly higher poverty rates, lower median incomes, and are losing residents at a significant rate. Counties with the lowest concentrations of government workers show the opposite pattern. This finding is consistent across two separate years of federal poverty and income data.

The National Pattern

We divided counties into two groups. High-government counties are those with more than 88 civilian government employees per 1,000 residents. Low-government counties are those with fewer than 44. The differences between the two groups in the following economic factors are significant. The IRS only published data from 2,315 counties, or roughly two thirds of American counties; both groups lag public national average income because those statistics are weighted for population, but high-government counties fair significantly worse.

In high-government counties, the average poverty rate is 15.6% -- 40% above the official national rate of 11.1%

High-government counties have an average poverty rate of 15.6 percent. Low-government counties, by contrast, average 12.2 percent. The official national poverty rate, as reported by the U.S. Census Bureau, was 11.1 percent in 2023. High-government counties had a 40 percent higher poverty rate on average.

Median income in each high-government county averages $66,231 -- nearly $14,400 below the national figure of $80,610

High-government counties average $66,231 in median household income figures. Low-government counties have an average of $72,553 for median household income.

This is significant because the median household income figures include the salaries of government workers themselves who on average earn more than private sector workers in many counties. Even with those above-average government salaries, high-government counties still have lower median incomes than their low-government counterparts. Without the government workforce inflating the numbers, the gap would likely be wider.

High-government counties lost 530 residents per year on average. Low-government counties gained 1,128.

The migration data also shows a notable pattern. High-government counties are losing an average of 530 taxpyers per year. Low-government counties are gaining an average of 1,128 per year. There is a swing of 1,658 per year between the two groups. This suggests that people choose to move away from places with large government workforces and toward places with smaller ones.

Among the biggest losers was Los Angeles County with a year-over-year net loss of 81,742 taxpayers. Among the biggest population gainers was Polk County, FL, with a net gain of 19,407 taxpayers.

The Finding Holds Across Two Years

A single-year analysis possibly distorts the results due to changing economic conditions. Open the Books compared federal poverty and income data across 2022 and 2023 and found the results were nearly identical.

Big City Case Studies

Even in big cities with high earners, some of the negative correlations can be detected.

Washington D.C. has 335.2 civilian government employees per 1,000 residents -- nearly six times the national median of 58.9.

The outcomes do not match the investment. D.C.’s poverty rate is 15.2%, approximately 37% higher than the national rate, in the city that houses every major federal agency responsible for addressing poverty nationwide. That’s despite boasting a median household income of $104,643, one of the highest in the country thanks to the presence of so many federal workers and pricey government contractors.

Year over year, DC was a net loser in taxpayers with a loss of 2,337 tax filers.

Manhattan has more government workers per resident than any other county in New York with 136.2 per 1,000 residents. This high government presence has not translated into better outcomes for residents. Manhattan’s poverty rate is 16.5%. Roughly 1 in 6 residents live below the poverty line, despite Manhattan being known as a global hub for financial and intellectual capital and having the highest GDP of any U.S. county.

The IRS data for New York County, which contains Manhattan, shows a similar story. The county lost 9,755 filers year over year.

Click here to interact with more county-level data.

Methodology

This analysis uses the most recent publicly available data from each federal source. Employment and population data run through 2024. Poverty and income estimates run through 2023. Migration data runs through 2021-2022, reflecting the additional processing time required for IRS tax return address matching at the county level. These timelines are consistent with how federal statistical agencies publish county-level data.

Source Data: BLS QCEW 2024 · USDA SAIPE 2023 · IRS SOI 2021-2022 · U.S. Census Bureau 2024