Can The Ongoing U.S. Labor Market Weakness Be Traced To The Biggest Loss Of Government Jobs Since WWII?

by: Mark J. Perry


This is an update of a similar post from about exactly one year ago, highlighting an issue that I still don't think has received enough attention: Most of the ongoing weakness in the U.S. labor market, the stubbornly high jobless rate, and the disappointing rate of overall job creation can be traced to one major factor: the ongoing decreases in government jobs.

The top chart above shows that in the 50 months since June 2009 when the recession ended, more than 6.3 million jobs have been created in the private sector and the employment level today is 5.8% higher than in June 2009. Over that same period, government sector jobs have fallen by 3.3%, and by more than 750,000 jobs.

In fact, the contraction of government jobs starting in 2009 is the largest contraction in public sector employment 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). Specifically, from January 2009 to August 2013, there has been a loss of 506,000 local government jobs, a loss of 183,000 state government jobs and a loss of 36,000 federal jobs, for a total net decrease of 725,000 total government jobs.

Therefore, while the overall level of job creation in the U.S. 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 126,000 per month since the recession ended in June 2009. Government jobs have been contracting by 15,000 per month on average over that period, which is bringing down the overall monthly job increases to only 111,000 on average.

By comparison, only 72,000 private jobs were added per month in the comparable 50-month period following the 2001 recession, which along with government job increases of 10,000 per month during that period, brought the average total monthly increase in employment to 82,000 between December 2001 and January 2006. During the current recovery, the private sector alone has created 54% more jobs per month (126,000) from 2009-2013 than were created by both the private and public sector in the comparable 2001-2006 period during the last recovery (82,000). And when only the private sector is considered, job creation during the last 50 months at an average of 126,000 per month is 75% higher than the 72,000 jobs per month created on average in the comparable 50-month period during the last recovery.

The multi-year periods following all three of the last 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 that is 75% greater than private job creation during the last recovery.