Public Sector Losses Continue to Drive Poor Jobs Numbers

August job creation stays flat as government continues to lay off workers.

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The U.S. economy saw zero net job creation in August, with an unemployment rate unchanged at 9.1 percent, the Labor Department announced Friday. The latest national employment report shows that, while service-industry job creation remains positive, goods-producing industries continue to struggle. However, one particular sector has reliably shed significant numbers of workers every month this year. It's not construction, and it's not manufacturing; rather, government jobs are being shed by the tens of thousands almost every month, hindering an already weak recovery.

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The August jobs report shows that the 17,000 public sector job losses last month completely wiped out the private sector's 17,000 job gains. Since the end of the recession, government employment--including federal, state, and local jobs--has fallen by roughly 600,000. State and local governments have particularly felt the pain, according to a report released this week by the Census Bureau, which shows that there were over 200,000 fewer state and local government jobs in 2010 than in 2009. Outplacement firm Challenger, Gray, and Christmas also reported this week that, while U.S. layoffs on the whole slowed last month, public-sector layoffs accelerated, from 9,389 in July to 18,426 in August.

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Those job losses are taking their toll on the national economic scene, and are in their own way creating more job losses in the private sector. "If we're losing [20,000 to 25,000] in the public sector, that's income and spending that doesn't occur. It's more like [35,000 to 40,000] jobs as a result of that," says Joel Naroff, president of Naroff Economic Advisors, an economic consulting firm based in Holland, Pennsylvania. "So one job isn't just one job; it's more than one job. And so the private sector gets affected," he says.

Behind those government job losses are budget cuts, particularly from states and local governments, many of which have lost revenues as lower incomes and lower property values lead to lower tax income. Those budget cuts mean fewer government contracts, which also leads to pain in the private sector. The winding down of the stimulus package also contributed to these losses, as federal assistance to state governments for things like extra Medicaid funding has disappeared, leaving many states with substantial budget gaps.

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Altogether, the strain on the national economy is considerable. "There's no such thing as a free budget cut." says Naroff. "If the public sector trims [20,000 to 25,000] jobs a month, then the private sector has to create those jobs before the economy can add one job. That's the hole that the public sector puts the economy in at this particular point," he says.

There is some small amount of comfort in the fact that government job losses have slowed from their worst point. Just over the course of summer 2010, for example, over 560,000 government jobs were lost. Since then, the public sector has lost jobs at a slower rate, and this year has generally lost 20,000 to 75,000 jobs per month. "We're not seeing a significant number of layoffs that maybe we were a year or two ago," says Leslie Scott, executive director of the National Association of State Personnel Executives.

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Many state government entities are doing all they can to cut costs while keeping workers on the payrolls, says Scott, which is leading to an easing in public-sector layoffs. "What we are seeing for the most part lately with state government jobs is certainly states are still experiencing hiring freezes and they're asking for in many cases concessions with unions and such on contributions to healthcare and retirement and possibly even forgoing planned pay increases," she says.

Naroff agrees that there is a good chance that public-sector job cuts will ease within the next year. "For state and local governments, last year and this year will probably be the worst of the budget cuts, the payroll cuts. After that, I think things will probably ease up."