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?

This post was originally published at The Capital Spectator and is reproduced here with permission.

2 Responses to "It’s The Government’s Shrinking Payrolls, Stupid"

  1. lisa   September 12, 2012 at 8:27 am

    And just what is the hourly pay-rate of the majority, or the average of the those jobs that are in that great 2% slowly apparently, current increase? And are these jobs just part-time, temporary without any medical benefits, job advancement opportunities, etc. ad-infinitum? Survival of the fittest to the max, especially when most are pretty unfit! There is no cause to advance, because???? The new US is just like good old Mumbai.
    Here's a couple of quotes from Wikipedia about Mumbai, and note it may have more billionaires than in the US. Read the whole page on Wiki, life in India and the rest of the world is not that bad, right? Just depends on a person's bias and naivete of expectations,huh?
    _a nice little quote, using general comparative statements-
    "Mumbai suffers from the same major urbanisation problems seen in many fast growing cities in developing countries: widespread poverty and unemployment, poor public health and poor civic and educational standards for a large section of the population. With available land at a premium, Mumbai residents often reside in cramped, relatively expensive housing, usually far from workplaces, and therefore requiring long commutes on crowded mass transit, or clogged roadways. Many of them live in close proximity to bus or train stations although suburban residents spend significant time travelling southward to the main commercial district.[239] Dharavi, Asia's second largest slum[240] is located in central Mumbai and houses 800,000 people.[241] With a literacy rate of 69%, the slums in Mumbai are the most literate in India.[242]"
    "Mumbai has been ranked 48th on the Worldwide Centres of Commerce Index 2008.[147] In April 2008, Mumbai was ranked seventh in the list of "Top Ten Cities for Billionaires" by Forbes magazine,[148] and first in terms of those billionaires' average wealth.[149]"

    So my message is that most US citizens will be, if not already, in the same demographic category as the majority of citizens in Mumbai, living in slums, and scurrying around in the slums.

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