Public sector austerity holding back economic recovery

July 26, 2012 | Economic Opportunity Institute

The last three years have been the worst in history for public sector job losses thanks to state and local government austerity, which has helped to hold back economic recovery.

A recent analysis from the Economic Policy Institute found public sector job losses have created a serious drag on the overall economic recovery. Since June 2009, federal, state and local governments have eliminated 627,000 jobs, but there’s more to the story than that.

Since the late 1980s, governments maintained roughly 7.3 workers per 100 people. But austerity measures reduced the ratio to 6.9 workers per 100 people. If the historical 7.3 worker ratio were maintained throughout the recession, the public sector would have added 505,000 more jobs, meaning the recession actually eliminated about 1.1 million public sector jobs.

Public-sector job losses have broader impacts, too. When teachers or firefighters lose their jobs, they spend less money at restaurants, malls, and on other services, meaning demand for waiters, retail workers and other private-sector jobs are lost, too. EPI estimates 751,000 private-sector jobs were eliminated because of public-sector shrinkage.

State and local governments aren’t reversing the trend, either. Even though many companies have been adding workers during the recovery, governments across the country are still slashing jobs in the face of ever-tightening budgets.

Washington state is no different. We’ve reported on public-sector job losses before, and the latest jobs data confirms the downward trend is continuing. Only three sectors lost jobs from June 2011 to June 2012, and the public sector suffered the greatest losses by far, shedding 6,300 jobs. Compared to June 2009, Washington’s public sector workforce has shrunk by 12,200 jobs.

public sector job loss in washington

Discounting a May 2010 spike caused by the hiring of Census workers, the downward trend has been fairly consistent, and may worsen. The latest economic forecast from the Economic and Revenue Forecast Council expects the public sector to shrink by another 1 percent this year, and 0.3 percent next year. By 2015, the Council forecasts the public sector will employ 8,200 fewer people than it did before the recession.

The public sector plays a vital role in overall economic wellbeing. Without a reversal of austerity policies, private sector growth will only ebb forward slowly, further dragging out the recovery and hurting average workers and families. To get our economy back on the right track, legislators should get serious about investing in state infrastructure and restoring public sector jobs.

~By EOI Intern Travis Crayton

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Posted in State Economy

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