PI Original Steven Ross Johnson Thursday August 9th, 2012, 4:31pm

Public Sector Job Losses Continue To Stymie Economic Recovery

As the effects of what has become known as the "Great Recession" continue to linger, state and local governments throughout the country have been forced to face the increasingly difficult task of providing an array of public services under ever-tightening budget constraints. Many of these cuts have led to the loss of government jobs. We take a look at how the loss of public jobs is continuing to affect the economic recovery.

As the effects of what has become known as the "Great Recession" continue to linger, state and local governments throughout the country have been forced to face the increasingly difficult task of providing an array of public services under ever-tightening budget constraints.

From 2007 to 2010, U.S. households lost more than 38 percent of their median net worth, according to the Federal Reserve, with losses currently totaling around $3 trillion.

Few coffers have been hit harder than those of state governments. According to the Center on Budget and Policy Priorities, states ran a combined $540 billion in budget deficits from 2009 through 2012.

The response by nearly every state government that found itself in the red was a series of fiscal austerity measures that included cuts in spending to social services, massive layoffs of public employees, and closures to a number of state-funded facilities. While state debt throughout the country - Illinois notwithstanding - has declined as a result, the significant losses in government jobs has raised questions as to the impact such measures have had on the nation's economic recovery.

"We've seen a big cutback in employment on the state and local level," said Dean Baker, co-director of the Center for Economic and Policy Research. "If employment on the state and local level had just kept on its pre-2007 trend, we would have 700,000 more people working at the state and local level."

Assuming those additional workers were to spend money within their communities, Baker said the overall impact of public employee cuts has meant a total loss of about 1.1 million jobs. 

"It doesn't get us to full employment, but it knocks roughly two-thirds of a percentage point off of the unemployment rate. So we're looking at a rate of 7.5 [percent] instead of 8.3 [percent]," Baker said. "It's not a great story, but it's a remarkably better one than what we've seen."  

According to figures from the Economic Policy Institute, for every dollar cut when a public sector job is eliminated, another 24 cents that would have gone into the economy in the form of spending is lost.

The significance of the number of jobs lost within the public sector, which according to EPI Economic Analyst David Cooper has been around 650,000 since 2009, cannot be overstated when examining the reasons why the economy has yet to fully rebound three years into its recovery.

"Job growth in this recovery has actually been better than job growth out the recession in the early 2000s and it's about the same as job growth coming out of the recession in the early 1990s," Cooper said. "The reason why the unemployment situation is still so bad is due to the severity of the recession, but also it's the unprecedented cuts at the state and local level."

Indeed, the private sector has added about 4.5 million jobs since early 2010, according to the White House, 172,000 in July alone. According to the Illinois Department of Employment Security's June jobs report, the state has added 140,700 private-sector jobs since January 2010, with the only significant decline in employment coming from the government sector, where 27,500 jobs have been cut throughout that same period.

"It's sort of a chicken-and-egg [situation] that state government cutting employment is what's pulling the economy back," said Therese McGuire, a professor of management and strategy at Northwestern University's Kellogg School of Management. "But until the economy starts to pick up, the revenues are not going to pick up to allow state and local governments to start hiring people back."

Unlike the federal government, nearly all states and municipalities are banned from passing a budget that runs a debt, leaving little recourse for many to offset their expenditures. The result is that states and local governments either raise their revenues through property, income and sales taxes, as well as fees and fines or cut costs.

McGuire said local governments are now being hit hard as a result of losses in property taxes due to a decline in home values, as well as the end of funding that many governments had received through the American Recovery and Reinvestment Act.

"The stimulus sort of protected states and municipalities a bit at the beginning of the recession, but those monies are now gone," McGuire said. "Most states are out of the woods now, but with local governments, property taxes are now falling off so they are really feeling the pinch."

While some have argued that another round of federal stimulus is needed in order to help ease the burden on local governments, passage of such a measure prior to November's election is highly unlikely, as a number of Republicans including presumptive GOP presidential nominee Mitt Romney have publicly expressed their opposition to such a plan.

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