Revenue & Spending
Slashed Public Payrolls Make the Unemployment Problem Worse
by Nick Schwellenbach, 6/18/2013
Although the private sector has been adding jobs, the United States still has roughly 2.4 million fewer jobs as of May 2013 than it did at the beginning of the latest recession, which started in December 2007, according to the Bureau of Labor Statistics. But the problem is even greater. Given a growing population and the number of discouraged and underemployed workers, to reach an unemployment rate closer to the historical norm, more than 8.5 million jobs need to be created.
Although the private sector is recovering, recent government policies have not been helping. The jobs situation would be substantially better if local, state, and federal governments were not cutting their payrolls. Since the start of the recession, about 528,000 government jobs have been eliminated, and a smaller percentage of the employed workforce works in government. The public sector added some jobs during the official period of the recession, but cut back more steeply since it technically ended. "Since the recovery began in June 2009, the public sector has lost nearly three-quarters-of-a-million jobs (737,000)," the Economic Policy Institute's Heidi Shierholz pointed out. "These losses are an enormous drain on the recovery."
The crunch in the public sector job market is exacerbating the substantial employment needs in the U.S. that are not being met. There are 11.8 million unemployed people; some 4.4 million (37 percent) have been searching for work for more than six months. Some 7.9 million are "involuntary part-time workers" – meaning they work part-time but want full-time work – and 780,000 have stopped searching for work altogether; these people are not counted in the official 7.6 percent unemployment rate.
Massive Jobs Shortfall
Source: Economic Policy Institute
In most recessions since World War II, the government would step in to help create jobs until private sector demand became more robust. But this recession was different. Austerity policies – automatic cuts at the federal level (sequestration) and earlier job cuts at the state and local levels – have left many more Americans jobless many months after the recession was declared over. While fiscal contraction is broader than simply shedding government jobs, the two tend to go hand in hand. As the World Bank explained recently, "A fairly robust private sector recovery is being held back, but not extinguished, by fiscal tightening."
The Washington Post's Ezra Klein went into more detail earlier this year:
The new numbers the Bureau of Economic Analysis released on fourth-quarter economic growth have received considerable attention for the clear damage that falling government spending did to the economy. According to the BEA, "government consumption expenditures and gross investment" knocked 1.33 percentage points off the total change in economic growth. If government spending had just been neutral — that is to say, if it had neither contracted nor expanded — the economy would have grown by 1.23 percentage points rather than shrunk by 0.1 percentage points.
But this isn't the first time that total government spending and investment has been a drag on growth. It pulled growth down by 0.67 percentage points in 2010, .34 in 2011, and .33 in 2012.
At First, Government Expansion Mitigated Job Losses, but Then Austerity Kicked in
Although the recession technically ended in July 2009, the private sector on its own has not yet been able to make up for the over 8 million jobs lost in the recession. The lowest employment level occurred in February 2010, when there were 8.8 million fewer people employed than in December 2007.
Between 2008 and 2010, the government did engage in anti-recessionary spending, especially through the American Reinvestment and Recovery Act, which saved or created 2 to 3 million jobs. However, beginning in fall 2010, the government began shedding jobs in significant quantities.
Government Employment in the Last Four Recoveries
Source: Economic Policy Institute
Those job losses have mostly occurred on the local government level – the largest government sector in terms of numbers of jobs – with 427,000 public sector jobs shed from December 2007 to May 2013. State governments followed with 93,000 jobs cut. In the aggregate, state and local government employment appears to have stabilized; however, some states are still experiencing shortfalls and pressure to cut government more.
The federal government, including the U.S. Postal Service, has cut some 6,000 jobs from December 2007 levels. And the sequester and 2012 cuts in discretionary spending appear to be accelerating the number of jobs being cut in recent months. This May, 14,000 federal jobs were cut, and over the past three months, 45,000 federal workers have lost employment.
The "Jobs Deficit"
One of the major differences between the 2007 recession and others in the post-World War II period is the extremely slow pace of job growth post-recession. During past recoveries, the economy was much faster in replacing jobs and growing employment beyond the levels that existed when previous recessions began.
Job Loss and Recovery in the Last Four Recessions
Source: Economic Policy Institute
But we have to do more than get back to the number of jobs in 2007; the labor force is growing and the economy needs to create more jobs to absorb the number of new job seekers. Currently, the labor participation rate has declined to the lowest levels since 1979, although it inched upwards in May. Many economists suggest this means many long-term unemployed have become so discouraged that they have dropped out of the labor force, although this is a source of great debate within the field.
The number of jobs added each month has hovered around just 175,000 for the last year.
The economy would be creating more jobs if it was not for the "fiscal drag" created by cutbacks in government spending and employment. And furloughed and laid off public sector workers reduce consumer spending and so reduce private sector employment, too.
Critics Advise the Government to Reverse Course
There is a legitimate debate about the best way government can create jobs – whether indirectly through greater spending on infrastructure and other investments that increase private sector hiring or through direct public sector hiring (school teachers, clean-up crews, etc.) – but in the last few years, the nation has not been having that debate. Instead, austerity-oriented politicians have been entirely focused on cutting down the size of government and immediate deficit reduction.
As the Center for American Progress stated in a recent report: "It is time to hit the reset button and move beyond a single-minded focus on the deficit to ask bigger questions about what investments we should be making in the future and how we should pay for these investments."
Of all the federal budget plans introduced by members of Congress this year, the Congressional Progressive Caucus' plan does the most to promote job growth. It would "boost gross domestic product (GDP) by 5.7 percent and employment by 6.9 million jobs at its peak level of effectiveness (within one year of implementation)," according to projections by the Economic Policy Institute, "while ensuring that fiscal support lasts long enough to avoid future fiscal cliffs that could throw recovery into reverse."
While the economy has begun to slowly recover in the private sector, reductions in public sector spending over the last three years have held back growth and allowed unemployment to remain unconscionably high. The conversation should change. One of the best things we could do to reverse course is to end the slash-and-burn approach to government so prevalent since 2010.