Public Sector Austerity A Major Drag On Unemployment

In the last week, both blogger Ezra Klein and Yale economists Ben Polak and Peter K. Schott released research that makes a strong case that the public sector layoffs that have taken place during the recession and beyond have made a significant

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In the last week, both blogger Ezra Klein and Yale economists Ben Polak and Peter K. Schott released research that makes a strong case that the public sector layoffs that have taken place during the recession and beyond have made a significant negative dent in the nation's employment rate. The country's current 8.2 unemployment rate would be as low as 7.0 if it weren't for the hidden austerity programs that have hit both the federal and state government employee pools in recent years.

Since Obama was elected, the public sector has lost about 600,000 jobs. If you put those jobs back, the unemployment rate would be 7.8 percent.

But what if we did more than that? At this point in George W. Bush’s administration, public-sector employment had grown by 3.7 percent. That would be equal to a bit over 800,000 jobs today. If you add those hypothetical jobs, the unemployment rate falls to 7.3 percent.

Polak and Schott go further in their analysis:

There is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it’s not. Going back as long as the data have been collected (1955), with the one exception of the 1981 recession, local government employment continued to grow almost every month regardless of what the economy threw at it. But since the latest recession began, local government employment has fallen by 3 percent, and is still falling. In the equivalent period following the 1990 and 2001 recessions, local government employment grew 7.7 and 5.2 percent. Even following the 1981 recession, by this stage local government employment was up by 1.4 percent...

Without this hidden austerity program, the economy would look very different. If state and local governments had followed the pattern of the previous two recessions, they would have added 1.4 million to 1.9 million jobs and overall unemployment would be 7.0 to 7.3 percent instead of 8.2 percent.

And note that much of that extensive hiring during previous recessions was done under Republican presidents. Barack Obama, in pursuing policies regarding the government employee workforce pushed by conservatives, undercut his own ability to improve the jobs picture, thus opening himself up to attacks from those very conservatives who he's trying to placate.

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