It’s The Government’s Shrinking Payrolls, Stupid

Mark Perry, an economics professor at the University of Michigan, writes that the weak labor market “can be traced to the biggest loss of government jobs since WWII.” The evidence is certainly damning if we compare government payrolls with private payrolls, which have been rising at nearly 2% a year over the past two years.

Perry crunches the numbers and finds that,

the contraction of government jobs starting in 2009 (almost 700,000 through August) is the largest contraction in public sector jobs since the 1945-1947 period following WWII when government jobs contracted by 770,000 jobs, and almost twice the 392,000 government jobs lost in 1981-1982.

Comparing the numbers for the past five years on the basis of the annual percentage change clearly shows that government payrolls are indeed shrinking these days.

Once we add private payrolls to the chart, the difference becomes obvious. In the next chart below, private employment (the yellow line using the left scale) has been consistently advancing by ~2% a year over the past 24 months. By contrast, federal, state and local government jobs have been shrinking recently. (The spike in Federal employment in 2010, by the way, was due to the temporary hiring of workers linked to the decennial census.)

How does the 1.8% annual rise in private jobs in August compare with history? It depends on the historical period you choose, of course. Relative to the best annual rate during the years just before the 2008 financial crisis, 1.8% looks pretty good. The fastest annual rate of private employment growth was in March 2006, when jobs growth peaked at 2.4%. But it’s another story if we take a longer view. Compared with the broad sweep of history, going back to the 1940s, 2% job growth looks like weak tea. In the late-1970s, for instance, the private sector was minting new jobs at roughly a 5% annual rate for a sustained period. And for much of the 1990s, 2% to 4% year-over-year growth was typical.

It’s clear that private sector employment growth has slowed in historical terms. That was obvious before the Great Recession. That’s a problem, of course, and one that’s being exacerbated by an across-the-board decline in government employment.

Politics ultimately infects the analysis these days, but it’s hard to argue with the numbers. Perry sums up the situation: “Private sector jobs have been increasing at 91,000 per month since the recession ended in June 2009. Government jobs have contracting by 18,000 per month on average over that period, which is bringing down the overall monthly job increases to only 74,000 on average.”

We can debate the finer points of whether the shrinking payrolls in government is productive or part of the problem, but let’s at least recognize the facts as reported. Unfortunately, even that basic standard is too high for some folks. Yes, we need to promote policies that will enhance private sector job growth. The question is whether cutting government jobs further in the here and now will advance this cause?

About James Picerno 895 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

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