Why We Should Care about Public Sector Job Loss

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Last week the Bureau of Labor Statistics (BLS) released preliminary revised unemployment estimates.  It appears that the economy actually netted 386,000 jobs this year, but only after accounting for a loss of 67,000 government jobs. This recent news compounds figures suggesting that as of August 2012, local government employment in the U.S. had decreased by approximately 650,000 jobs from peak levels in 2008.

So what’s the big deal? Shouldn’t we be satisfied with growth in the private sector and call it a day?   Well, not exactly. The underlying fiscal factors driving government job loss and the implications on the much lamented mid-wage/skills gap should give us all pause.

What’s driving the Loss?

Fiscal conditions at the local level are driving much of the loss in local government employment. According to our recent City Fiscal Conditions survey report, city finance officers report that revenues will decline this year for the 6th year in a row. This, combined with infrastructure costs, employee-related costs for health care, pensions, and wages and cuts in state and federal aid are weighing heavily on local budgets.

In response, cities are making cuts to personnel. When asked about expenditure actions taken in 2012, by a wide margin the most common response was reducing the size of the municipal workforce (48%). Additionally, they are also delaying and canceling infrastructure projects and cutting local services – actions that also have direct employment implications.

Cities are approaching their personnel cuts in a variety of ways. In 2012, the most common cut so far was a hiring freeze (45%). At least one in four cities reduced or froze employee wages (32%) or reduced health care benefits (27%).   Other personnel actions to date have included layoffs (18%), revising union and employee contracts (16%), reducing pension benefits (15%), early retirements (14%), and furloughs (11%).

Many cities used some combination of these types of actions in an effort to reduce personnel costs. Although the percentage of city finance officers reporting these actions in 2012 is, in all categories, lower than in 2011, the combination of these cuts since 2010 has resulted in a significant reduction in the size of local government workforces.

What’s the Impact?

In addition to the typical negative impacts of unemployment on the economy, such as decreased consumer spending, unemployment in the public sector has particular consequences for the quality of anticipated economic recovery and the role of government in delivering critical services.

According to the National Employment Law Project (NELP), steep cuts in state and local government employment have hit mid- and higher-wage occupations the hardest, with low wage jobs dominating recovery. The loss of government employment means that in order to find work, many with higher skills are filling low wage jobs, taking pay cuts, and crowding others out of the job market.

Additionally, the majority of the state and local jobs impacted are those that have direct implications for local service delivery. Teachers and public safety have been the hardest hit, according to the Current Population Survey. And the NLC survey finds that this year, 21% of cities are decreasing human services spending, and 25% made spending decreases in “other” services such as public works, libraries, parks and recreation programs.

Will these jobs come back?

Struggling housing markets, slow consumer spending and high levels of national unemployment will continued to drive declines in city revenues, forcing difficult cuts to the public workforce. Research indicates that we shouldn’t expect to see recovery to state and local employment before 2017.

A silver lining, however, comes as a majority of city finance officers report that their cities are better able to meet financial needs in 2012 than in 2011. Although promising, this is likely the effect of local governments coming to terms with the (clichéd) “new normal.” Cities are adjusting, they are sharing costs for services, engaging citizens to reevaluate core service needs, forging new relationships with the private sector for service delivery, and overall improving fiscal management.

It is with hope that the new BLS jobs figures, released October 5, will show improvements in the public sector.  This would be a much welcomed break in a long, difficult road for local governments, their employees and their communities; but even glimmers of recovery must be viewed cautiously.  Any further disruption in national recovery could impede this anticipated improvement at the local level.