Trends in Noncovered Employment and Earnings Among Employees of State and Local Governments, 1994 to 2018

Introduction: Employment Coverage under Social Security

In 2020, approximately 93 percent of U.S. workers were covered by Social Security (Social Security Administration [SSA] 2021a). Most workers not covered by Social Security are in one of five categories:

• Civilian federal employees hired before 1984;
• Railroad workers (although the railroad retirement system is coordinated with Social Security);
• Certain state and local government workers covered under their employers' retirement systems;
• Domestic and farm workers whose earnings are below minimum requirements; and
• Self-employed workers whose earnings are below minimum requirements.

This briefing paper describes trends in the number and proportion of state and local government employees in jobs not covered by Social Security and their median annual earnings during the years 1994 through 2018, as recorded in SSA's Continuous Work History Sample (CWHS). This population is of interest to SSA because Social Security retired-worker and spouse beneficiaries who receive pension income from noncovered employment are subject to benefit adjustments under the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), respectively (Springstead 2021).¹

Data and Methods

The results presented in this briefing paper were derived from analysis of the CWHS, a research file representing 1 percent of all Social Security numbers ever issued.² The CWHS includes data on taxable earnings in covered employment from 1951 forward. Beginning with tax year 1978, it includes earnings from both covered and noncovered employment (SSA 2021b). Covered employment includes all jobs (or self-employment) subject to Social Security payroll tax deductions. Taxable wages in covered employment are the basis on which SSA determines both eligibility for Social Security benefits and the amounts of those benefits. Earnings in covered employment are taxable up to an annually adjusted threshold amount called the taxable maximum.³ Noncovered employment is not subject to the payroll tax and is not creditable toward Social Security benefit eligibility.

This briefing paper describes results derived from the 2018 CWHS, the most recent file available when the analysis was conducted. The data include earnings histories for 3,960,726 individuals, of whom 53.0 percent are men and 47.0 percent are women. The earnings analyzed consist of annual wage and salary earnings in both covered and noncovered employment, including earnings exceeding the annual taxable maximum, for all years in which earnings were equal to or greater than one Social Security credit.⁴ Because the focus of the analysis is on workers employed in state and local governments, self-employment earnings are not included. The earnings data include annual amounts earned by workers aged 18 through 70 in the years 1994 through 2018.⁵ All earnings have been indexed to 2018 values based on the Consumer Price Index for All Urban Consumers (CPI-U). The results are shown as annual averages within various five-year periods for national data and as single-year data by selected state.

Workers sometimes hold two or more jobs during a calendar year, either concurrently or consecutively. For this analysis, all jobs held in a single year were sorted by earnings from highest to lowest, and the job associated with the highest earnings was treated as the worker's primary or main job for that year.⁶ The worker's sector of employment was classified according to the Social Security coverage code associated with his or her main job either as “state or local government employment” or “other employment.” Earnings in the worker's main job were classified as covered earnings if they were subject to the Federal Insurance Contribution Act (FICA) payroll tax or as noncovered earnings if they were not subject to the FICA tax.

Results are presented in tables that show:

• The distribution of employment between state and local governments and all other employers;
• The distribution of state and local government employment between covered and noncovered workers;
• The share of noncovered workers employed in each of eight states that together account for four-fifths of noncovered state and local government employment; and,
• The median annual earnings of state and local government employees in covered employment and noncovered employment nationally and in selected states.

Results

In the five years 2014–2018, state and local governments employed an annual average of 11.8 percent of wage and salary workers in the United States (Table 1). This was 1.3 percentage points lower than the proportion during the five years 1994–1998 and 1.5 percentage points lower than the share during the years 2006–2010. The Great Recession of 2007–2009 and its effect on state and local government tax revenues may have contributed to the subsequent decline in the proportion of workers employed by state and local governments.

In the five years 2014–2018, state and local governments employed an annual average of 9.1 percent of male wage and salary workers in the United States and 14.7 percent of female wage and salary workers. The difference in rates of employment between men and women was due in part to the large proportion of state and local government employees who are teachers. The Census Bureau (2020) estimates that 42 percent of state and local employees worked in primary and secondary education in 2019, including teachers and administrators. The National Center for Education Statistics (2021) reports that 76 percent of public school teachers in the 2017–2018 school year were women.

The decline in the proportion of workers employed by state and local governments between 1994–1998 and 2014–2018 was relatively larger among men than among women. During this period, the proportion of men employed by state and local governments fell from 10.4 percent to 9.1 percent, a decline of 1.3 percentage points or 12.5 percent. At the same time, the proportion of women employed by state and local governments fell from 16.1 percent to 14.7 percent, a decline of 1.4 percentage points or 8.7 percent. Although the proportion of men employed by state and local governments declined from 1994–1998 to 2014–2018, the number of men employed was stable. The 10.4 percent of men who were employed by state and local governments in 1994–1998 and the 9.1 percent who were employed in 2014–2018 both comprised about 7 million workers. In contrast, the 14.7 percent of women who were employed by state and local governments in 2014–2018 represented 10.7 million workers, or about 1 million more women than worked for state and local governments in 1994–1998.

In the five years 2014–2018, an annual average of 26.3 percent of state and local government employees worked in jobs not covered by Social Security (Table 2). This was 1.1 percentage points (4.4 percent) higher than the proportion during the five years 1994–1998. Average annual employment in state and local governments increased by 0.9 million (5.4 percent) between 1994–1998 and 2014–2018, rising from 16.8 million to 17.7 million. The number of state and local government employees working in jobs not covered by Social Security rose by approximately 0.5 million (11.9 percent), increasing from 4.2 million in 1994–1998 to 4.7 million in 2014–2018. Thus, the percentage increase in the number of state and local workers in jobs not covered by Social Security was more than twice as large as the percentage increase in state and local government employment overall.

During the five years 2014–2018, 26.7 percent of men and 26.1 percent of women employed by state and local governments worked in jobs not covered by Social Security. These were increases of 0.3 percentage points for men and 1.8 percentage points for women since the five years 1994–1998. In 2014–2018, approximately 1.9 million men worked in state and local government jobs not covered by Social Security, an increase of less than 0.1 million from 1994–1998. In contrast, the number of women who worked for state and local governments in jobs not covered by Social Security rose from an estimated 2.4 million in 1994–1998 to 2.8 million in 2014–2018. Thus, of the overall increase of 0.5 million workers in state and local government jobs not covered by Social Security, more than four-fifths of the increase occurred among women.

Throughout the period from 1994 to 2018, eight states—California, Colorado, Georgia, Illinois, Louisiana, Massachusetts, Ohio, and Texas—accounted for almost four-fifths of all state and local government employees not covered by Social Security. All other states combined accounted for 22.4 percent of noncovered state and local government employees in 1994 and for 20.4 percent of them in 2018 (Table 3). Three states—California, Ohio, and Texas—together accounted for more than half of noncovered state and local employees in both 1994 (50.1 percent) and 2018 (52.9 percent). In 2018, state and local governments in Texas employed 18.7 percent of all U.S. state and local government workers not covered by Social Security, an increase of 5.9 percentage points from 1994. Colorado accounted for 5.4 percent of U.S. noncovered state and local government employees in 2018, an increase of 1.5 percentage points from 1994. The proportions of all noncovered state and local government workers employed in Louisiana and Ohio each fell by 2 percentage points between 1994 and 2018. The proportion of noncovered state and local government workers who were employed in California declined by 1.1 percentage points.

In both 1994–1998 and 2014–2018, real median annual earnings in both covered and noncovered state and local government employment were higher among men than among women (Table 4). Between these two periods, however, women's earnings grew more rapidly than men's earnings both in constant dollars and in percentage terms, thereby reducing the difference in real median annual earnings between men and women employed by state and local governments.

Real median noncovered annual earnings of male state and local government workers rose from $50,407 in 1994–1998 to $51,684 in 2014–2018, an increase of $1,277 or 2.5 percent. Real median covered annual earnings of male state and local government employees rose from $43,368 to $44,756 between these two periods, an increase of $1,388 or 3.2 percent. Real median noncovered annual earnings of female state and local government employees rose from $35,163 in 1994–1998 to $38,492 in 2014–2018, an increase of $3,329 or 9.5 percent. At the same time, real median covered annual earnings of female state and local government employees rose from $31,675 to $35,471, an increase of $3,796 or 12.0 percent. Among noncovered state and local government workers, women's real median earnings equaled 69.8 percent of men's earnings in 1994–1998 and 74.5 percent in 2014–2018. Among state and local government workers in covered employment, women's real median annual earnings equaled 73.0 percent of men's earnings in 1994–1998 and 79.3 percent in 2014–2018.

Among male state and local government workers, real median covered earnings equaled 86.0 percent of median earnings in noncovered employment in 1994–1998 and 86.6 percent in 2014–2018. Among female state and local government workers, real median covered earnings equaled 90.1 percent of median earnings in noncovered employment in 1994–1998 and 92.2 percent in 2014–2018.

Table 4 includes covered earnings both in states where all state and local government employees were covered by Social Security and in states where some employees were covered and some were not. Consequently, the difference in real median covered earnings and real median noncovered earnings in Table 4 reflects differences in earnings across states as well as within states. Observing the difference in median covered earnings and median noncovered earnings in states in which some workers are covered by Social Security and some are not covered requires that we examine earnings in these states separately (Table 5).

The real median annual earnings of state and local government workers in noncovered and covered employment differed both within states and across states in the years 1994, 2006, and 2018. Real median earnings in noncovered employment and covered employment also differed between men and women both within states and across states. The eight states highlighted in Table 5 account for almost four-fifths of state and local government employees with noncovered earnings in the United States. They represent all regions of the country and therefore reflect regional variations in earnings. The table shows that:

• Men's real median annual noncovered earnings were highest in California and lowest in Georgia in both 1994 and 2018.
• Men's real median annual covered earnings were highest in California in 1994 and in Massachusetts in 2018; and lowest in Ohio in both 1994 and 2018.
• Women's real median annual noncovered earnings were highest in California in both 1994 and 2018; and lowest in Colorado in 1994 and in Georgia in 2018.
• Women's real median annual covered earnings were highest in California in 1994 and in Colorado in 2018; and lowest in Massachusetts in 1994 and in Louisiana in 2018.

In several states, median noncovered earnings were higher than median covered earnings for both men and women in 1994 and in 2018, but in Colorado, Georgia, Massachusetts, and Texas, the relationship was reversed in some years either for male employees, for female employees, or for both. In several states, median noncovered earnings and median covered earnings differed by substantial amounts. The difference between median noncovered and median covered earnings may reflect differences in occupation and in full-time versus part-time employment between covered and noncovered workers. Because the CWHS does not include data on occupation or hours worked, we cannot examine the possible detailed causes of the difference with this data set.

Summary and Conclusion

Between 1994–1998 and 2014–2018, the proportion of American workers employed by state and local governments fell from 13.1 percent to 11.8 percent. Nevertheless, because the overall U.S. labor force increased during that time, the number of workers employed by state and local governments rose from 16.8 million to 17.7 million. The proportion of state and local government employees whose jobs were not covered by Social Security rose from 25.2 percent in 1994–1998 to 26.3 percent in 2014–2018. Combined with the increase in the number of workers employed by state and local governments, the rising proportion of noncovered employment resulted in the number of state and local government workers in jobs not covered by Social Security rising from 4.2 million in 1994–1998 to 4.7 million in 2014–2018. The increase in the number of state and local government employees with noncovered earnings suggests that SSA workloads to administer the Windfall Elimination Provision and Government Pension Offset also will rise in the future.

In both 1994 and 2018, California, Colorado, Georgia, Illinois, Louisiana, Massachusetts, Ohio, and Texas accounted for almost four-fifths of all state and local government employees not covered by Social Security. California, Ohio, and Texas together accounted for about half of noncovered state and local government employees in both 1994 and 2018. The proportion of all state and local government employees not covered by Social Security who worked in Texas increased from 12.8 percent in 1994 to 18.7 percent in 2018. Louisiana and Ohio both experienced declines of 2 percentage points in their shares of the nation's noncovered state and local government employees.

In both 1994–1998 and 2014–2018, the real median annual earnings of state and local government employees were higher among men than among women in both covered and noncovered employment. Women's median annual earnings grew more than men's in both real dollars and in percentage terms between these two periods, thus reducing the difference between men's and women's real median earnings. Among state and local government workers in noncovered employment, women's real median annual earnings equaled 69.8 percent of men's median earnings in 1994–1998 and 74.5 percent in 2014–2018. Among state and local government workers in covered employment, women's real median annual earnings equaled 73.0 percent of men's earnings in 1994–1998 and 79.3 percent in 2014–2018.

In the eight states that accounted for approximately four-fifths of state and local government employees with noncovered earnings in 2018, median noncovered earnings were substantially higher than median covered earnings in California, Illinois, Louisiana, and Ohio. In other states, the differences between median noncovered and covered earnings were smaller, and in some instances, median covered earnings were greater than median noncovered earnings. Differences in median earnings between covered and noncovered employment could reflect differences in occupation and in full-time versus part-time employment, but we cannot investigate these possibilities with the CWHS because it lacks data on occupation and hours worked.

Demographic trends will influence future growth in the number of state and local government employees with noncovered earnings. The eight states that account for almost four-fifths of these workers represent all regions of the country, and recent rates of population change in these states have varied greatly. Between 2010 and 2020, for example, the resident U.S. population increased by 20.2 million, or 6.5 percent (Census Bureau 2021). In that time, the population of Illinois fell by 253,000 (2.0 percent), while the population of Texas grew by 4.1 million (16.3 percent). Colorado (15.1 percent) and Georgia (10.3 percent) also experienced population growth rates that exceeded the national average. California, Louisiana, Massachusetts, and Ohio all experienced rates of population growth that were lower than the national average. Future changes in the number of state and local government employees with noncovered earnings will also be influenced by rates of growth in state tax revenues, automation of state and local government services, political developments, and other factors that are beyond the scope of this briefing paper.