Labor Market Weakness Can Be Traced to the Biggest Loss of Government Jobs Since WWII
I don't think this issue has received much (any?) attention:
Most of the weakness in the U.S. labor market, the stubbornly high unemployment rate, and the slow rate of overall job creation can be traced to the ongoing decreases in government jobs, see chart above.
The top chart above shows that since January 2010, more than 4.5 million jobs have been created in the private sector and the employment level today is 4.3% higher than at the beginning of 2010. Over the same period, government sector jobs have fallen by 2.6%, or by 579,000 jobs.
In fact, 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 (see bottom chart above).
From January 2009 to August 2012, there has been a loss of 533,000 local government jobs, a loss of 149,000 state government jobs and a gain of 27,000 federal jobs, for a total net decrease of 655,000 total government jobs.
Update: While the overall level of job creation has been slow, it’s being dragged down by the significant job losses in the public sector, especially for local government jobs. 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. By comparison, 30,000 private jobs were added per month in the comparable period following the 2001 recession, which along with government job increases of 11,000 per month, brought the total monthly increase in employment to 41,000. During the current recovery, the private sector alone is creating more than twice as many jobs per month as were created by both the private and public sector in the recovery of 2002-2004.
The periods following all of the last three recessions have accurately been described as “jobless recoveries.” But we should recognize that this recovery is different, because unlike the previous two jobless recoveries, we now have ongoing losses in public sector jobs. Without the losses in government jobs at the state and local levels dragging down job growth, the overall U.S. labor market would be doing much better right now.
Perhaps the significant downsizing of government at the state and local level is a positive development for the future growth of the U.S. economy, and one benefit of the Great Recession. But we should also pay some attention to the fact that one of the reasons for the disappointing monthly employment reports is the persistent weakness in the public sector employment, which is offsetting the relatively healthy increases in private sector hiring.