The U.S. economy is working its way to employment health. Since last November private sector non-farm payrolls have climbed by over a million jobs. Part of the reason this growth hasn't brought the overall unemployment rate down as much as we'd all like to see is that government employment has FALLEN by almost a quarter of a million jobs during the same period.
But, since government employment grew too quickly during the halcyon bubble years, this readjustment is a good thing. From November of 2009 to November of 2010, the ratio of government to private-sector employees has declined from 21.3% to 20.9%. There are now less government jobs for each private sector jobs to support or, looked at another way, there are more private sector jobs supporting each government job. Either way it's good economic news.
The charts above (all for November of their respective years and NOT seasonally-adjusted) are evidence for the fact that government grows to fit the revenues available. From 2003 through 2007 both private and government employment grew. Because of fast growth in the private sector, the ratio of government to private workers actually declined slightly during that time. But, with hindsight, we should have been asking "why is the size of government increasing at all?"
In 2008, as the bubble burst, private employment fell off a cliff; but government kept adding workers. The ratio of government to private jobs shot up from 19.6% to 20.4%. In 2009, thanks to stimulus, government jobs only decreased slightly while private sector jobs continued a precipitous decline. With the end of most stimulus in sight, local government employment has decreased by 260,000 since last November; but there are 10,000 new jobs in state government and 6,000 new jobs in the federal government.
We can expect to see the decline in local jobs continue as the remaining stimulus money dries up. Nationally, there is very likely to be a decline in state jobs as Mounting State Debts Stoke Fears of a Looming Crisis in Tuesday's New York Times makes painfully clear. State government employment in Vermont IS down almost 10% in the last few years and Vermont is not one of the troubled states listed in the Times story. And it has one of the lowest unemployment rates in the nation (too much other data to argue cause and effect, however).
We need to see a decline in federal jobs over the years ahead to bring the size of the federal government down to a size we need and can afford; Obama's deficit commission has recommended a 10% cut.
Liberal economists like Paul Krugman argue that, in order to recover from the recession, we need the spending by government employees who might be laid off. Of course you could make that argument about any expenditure of government money or any job, productive or not; but the argument ignores the cost to the private economy of supporting a bloated government sector. All things being equal as economists like to say, total employment would have gone up more quickly if there hadn't been a shrinkage in government employment – but that assumes that the private sector would've recovered even the little it has if the weight of government kept increasing.
There aren't as many private sector jobs as there were in 2003 (and that was a bad year). There are more people in the country than there were then. There isn't any reason to think things will "recover" to the peak of the last bubble – at least until the next bubble. But we are adding jobs where they're needed most. Government is not a sustainable growth industry. The latest economic news is more good than bad.
All data is from the Bureau of Labor Statistics dataset generator.