Public sector cuts dragging down U.S.’s already fragile economic recovery
For the last 24 years James Estep has worked in public education. He has never seen anything like this. The superintendent of Pennsylvania’s Mifflin county school district is wrestling with a multimillion deficit that last year led to him cutting 83 jobs – a fifth of his workforce – and closing a high school and three elementary schools. This year he says there’s more to come. “I don’t see the end of this,” he says.
Estep is not alone. There are 500 superintendents across Pennsylvania. “I don’t know anybody who hasn’t had to make severe cuts,” he said. “We are being forced to make decisions that you would never want to make as an educator. About the future of arts and music, physical education.” The district once had someone dedicated to human resources; now that job is contracted out for one hour a week.
Today the commerce department said cuts to local and state government spending were holding back economic growth in the US. When the US labor department releases its latest monthly jobs figures on Friday morning, government sector jobs are once again expected to be holding back recovery.
At the start of the recession the public sector seemed cushioned from the reality of the meltdown. Not anymore. Private sector jobs are coming back, albeit slower than hoped for, but the public sector is going through its worse culling in living memory.
Some 22 million people are directly employed by the US in one capacity or another and millions more hired on contract. The private sector would have to be roaring ahead to pick up the slack as an employer of that size cuts jobs. And the sad truth is, it is not. On current trends the US job market will not get back to where it was before the recession started until the 2020s. With unemployment a key battleground of the 2012 election, the stubborn, downward trend in potential swing states like Pennsylvania, could cost President Barack Obama his job.
More than 142,500 public sector jobs were cut last year, according to recruitment consultant Challenger, Gray & Christmas. Some 49,250 people working in education lost their jobs too. The public sector cuts have continued this year, albeit at a slower rate, but the cuts in education have continued to be particularly hard hitting at 18,246 so far this year they are almost twice the number of government cuts.
The cuts look set to continue. In April 4,100 teachers in the Detroit public schools district received notices that they would need to reapply for their jobs for the coming school year.
When Obama was inaugurated in January 2009 there were 22.57m government jobs in the US, according to the bureau of labour statistics. In April there were 21.96m. Apart from a brief spike when the government went on a hiring spree to complete its national census, government employment has been on the slide throughout his presidency having soared under both his recent predecessors, George W Bush and Bill Clinton.
The economist Paul Krugman has argued that if public employment had grown under Obama the way it did under Bush, there would be 1.3m more government jobs, and the unemployment rate would now be 7% or less, a full percentage point and more below current levels.
The cuts have not come at the federal level however, where Obama has more say, but at the state level. State employment, far larger than Federal employment, was cut 1.2 percent in 2011 – the largest percentage for any year since counting began in 1955.
Budgetary crises have led to some municipalities declaring bankruptcy and many more facing financial ruin. Cuts in military spending and the crisis in the US post office have compounded the woes of the public sector. And as the private sector appears to be bouncing back, there is little evidence that the public sector will follow.
“State governments act a lot like ordinary households in their spending habit,” said Gary Burtless of policy think tank the Brookings Institute. During a financial crisis they start by trying to maintain old spending habits. “Revenues drop off but they keep spending. Then they run up to their limits, the rainy day funds are out of cash, and they realise they have to do something,” he said.
For local governments that is either raise taxes or cut costs. In 2010 the rise of the anti-tax, pro-cuts Tea Party as a political force in the US triggered a shift in the political landscape as mid-term elections ushered in a wave of legislators across the US who had sworn to cut taxes and spending. The result has been to put further pressure on states to axe public sector jobs and made it impossible for many to raise revenues from higher taxes.
As with household spending, state spending was always likely to lag behind any recovery, said Burtless. The political shift to the right and against public sector employment will be a further drag.
John Schmitt, economist at the Center for Economic and Policy Research, said the impact of the cuts goes beyond the job itself. “Local government jobs mean local spending, so these type of losses are compounded,” he said.
And even when public sector employers are not firing, they are not hiring. A recent survey by the Pennsylvania Association of School Administrators found three-quarters of respondents anticipated that they would furlough or not fill vacancies in their district for the 2012-13 school year. More than half of the survey respondents said wage freezes were in place in 2011-12, up from 16% in 2010-11.
Even if the political will to raise taxes could be found, revenue is unlikely to bounce back for local governments until the property market recovers. Municipalities have been reliant on property taxes for the bulk of their revenues. The US housing market hit new lows this week, falling to levels last seen in 2002 across 20 major cities.
“There are people who argue that the public sectors day of reckoning is here and we need to face reality,” said Estep. He traces that anger back to the start of the recession when it appeared to be business as normal for the public sector as the rest of the economy went to the dogs. “That’s certainly not the case anymore in Mifflin county,” he said.
[Jobseeker photo via Shutterstock]