On (not) abiding public employment. (Graphs)

Image via Dudeism

The August jobs report underscores (shocker) many things. One of those happens to be the continued drag on employment coming from the public sector. Last month 7,000 workers found themselves unemployed – which is, at least, better than July’s 21,000. This brings the total public sector job loss to 680,000 since the peak in August 2008. So while the public sector has been adding jobs (however tepid) for the last two and half years, the public sector has putting people out of work for the last four years.

Let’s take a look at seven charts to help put this in perspective.

Employees at the federal level:

Disregarding the spike in employement due to temporary Census hiring, federal employment has largely stayed flat (with stagnanting wages since the federal pay freeze).

With the federal side of things steady, most of these job losses are occurring on the state and local level (via CBPP):

Almost three-quarters of a million people.

We can break this down a couple of steps further, first looking at state government employment:

There was specific “fiscal relief” for states in the American Recovery and Reinvestment Act [ARRA]. That aid was originally slated to end December 31, 2010 – in the middle of many FY2011 state budgets. Several states shed employees in anticipation of wider budget gaps.

Further down looking at local government employment:

And finally, specifically, with local government education employment:

Also noteworthy is the difference between our current recovery and the last two (chart itself via EPI):

Yes, “Big Government” Obama has presided over the largest public-sector job hemoraging following a recession in the last twenty-two years.

Now here’s the counter-factual — what would have happened had we just kept these people on the payrolls?

(WSJ graph via Ritholtz)

Without those public-sector losses the unemployment rate would be around 7.1 percent (probably lower with updated data). If we had continued to maintain a pre-recession norm of public-sector worker to population ratio then we should have added over 500,000 public-sector jobs, according to this report (July 2012) from the Economic Policy Institute (all emphasis mine):

[…] This means that, relative to a much more economically relevant trend, the public sector is now down more than 1.1 million jobs. And even against this more-realistic trend, these public-sector losses are dominated by austerity at the state and local level, with federal employment contributing only around 6 percent of this entire gap.

It should be noted that this counter-factual of 1.1 million additional public sector jobs is a perfectly reasonable benchmark. Before the Great Recession, the number of public-sector workers per 100 people had averaged right around 7.3 since the late 1980s. In other words, having 1.1 million more public-sector workers, which would put us back at 7.3 public-sector workers per 100 people, would simply restore our economy to a normal level of government employment. Further, if the public sector had simply grown in this recovery at the average rate of the last two recoveries, the labor market would currently have 1.2 million more public-sector jobs, so public-sector job growth of this pace is clearly in line with past history.

Moreover, such losses have a deleterious effect on private-sector employment as well:

However, even that 1.1 million public-sector jobs gap leaves out an important component: public-sector job cuts also cause job loss in the private sector, for a couple of reasons. First, public-sector workers need to use inputs into their work that are sourced by the private sector. Firefighters need trucks and hoses, police officers need cars and radios, and teachers need books and desks. When public-sector jobs are lost, it stands to reason that the inputs into these jobs will fall as well, and indeed research shows that for every public-sector job lost, roughly 0.43 supplier jobs are lost.3

Second, the economic “multiplier” of state and local spending (not including transfer payments) is large – around 1.24.4This means that for every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy. Teachers and firefighters stop going to restaurants and buying cars if they’re laid off, which reduces demand for waitstaff and autoworkers and so on. Add these two influences together (supplier jobs and jobs supported by this multiplier impact) and roughly 0.67 private sector jobs are lost for every public sector job cut.   This means that the public sector being down 1.1 million jobs has likely cost the private sector 751,000 jobs (1.1 million*0.67).

Further, it should be noted that this 0.67 figure only accounts for private-sector job loss that is due to direct public-sector job loss. But state and local austerity has components besides cutting direct jobs; when these governments cut back, they often don’t just cut jobs, they also cut transfer payments (generally safety-net programs like Medicaid and unemployment insurance which are not associated with much direct public-sector employment, but instead transfer money straight to distressed households).

Why is this important? Because if it’s true that our economic malaise is the result of depressed aggregate demand (due to a jobs crisis), then spending four years putting people out of work would be a bad idea. Of course the ARRA helped mitigate some of those losses, but that aid stopped a year and half ago. The American Jobs Act (AJA) would have helped stemmed the tide some, but that was filibustered by Senate Republicans. A separate bill broken off from the AJA specifically targeted towards education and emergency services was also filibustered. For all intents and purposes the current stance of “We the People” is to abide the forfeiture of public-sector jobs in a weak economy.

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