Thursday, May 10, 2012

By Derek Thomas, Policy Analyst

The Wall Street Journal reported yesterday that the national unemployment rate would be 7.1% in the event that state and local government jobs were spared. The methodology behind this calculation requires too many assumptions for a blog post, so we’ll stop short of calculating a hypothetical rate for Indiana. However, the article suggested that:

“One reason the unemployment rate may have remained persistently high: The sharp cuts in state and local government spending in the wake of the 2008 financial crisis, and the layoffs those cuts wrought.

The Institute reported in its Status of Working Families, 2011 report that:

“From August 2008 through February 2012, state and local government jobs have decreased by 5.2 percent. This represents nearly 22 percent (21,200 jobs) of all jobs lost during the same time period. In a single month, from August 2010 to September 2010, Indiana shed nearly 10,000 state and local government jobs.” Only 10 states saw more jobs lost at state and local government levels."

In the report, we provided the following chart, displaying percentage changes in government employment 50 months after the 1981 and 2007 recessions.  As shown, 4 years after the 1981 recession, government employment (federal, state and local) had grown by 3.1 percent, while 4 years after the 2007 recession, government jobs shrank by 1.7 percent—that’s a difference of hundreds of thousands of jobs.  


In addition, EPI notes that maintaining public employment levels supports private-sector jobs by a number of economic multiplier effects, such as: reducing transfer payments, private contracting, equipment suppliers and re-spending.

Of course, maintained employment would not be possible without maintained spending.  As such, we noted in the report that the most robust of postmodern recessionary recoveries also coincided with the most growth in government spending. Take a look here:


As Indiana lawmakers head to summer budget hearings, caution should be given to policies that continue to focus solely on decreased spending and cuts in public services without consideration to gains in revenue and the clear impact it has had on working Hoosiers.  

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