State, Local Governments Shrink as Private Sector Grows

by: Mark J. Perry

In a recent WSJ editorial "We've Become a Nation of Takers, Not Makers" Steve Moore points a rather depressing statistic:

Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million, see chart above). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.

But what's far less depressing is to notice the trends in employment: The manufacturing sector has added almost 200,000 jobs over the last year, while total government employment has decreased by more 350,000 jobs over the last year. Most of that reduction in government workforce has taken place at the local level, which has shed 259,000 jobs since March of 2010, bringing the total number of local government job in March (14.195 million) down to the lowest level since August 2006, more than four and-a-half years ago (see bottom chart above).

Similarly, the number of public-sector employees at the state level was the lowest in March (5.119 million) since August 2007, slightly more than three and-a-half years ago. Although the federal government's workforce has fallen by 74,000 over the last year to 2.852 million, that's above the pre-recession level by 95,000. That's understandable given the fact that states and local governments are burdened with greater fiscal constraints (like having to balance their budgets) than the federal government. Fiscal belt-tightening and reductions in government employees happened only at the local and state, and not so much at the federal level.
Overall, the reduction in state and local government employment levels to their 2006-2007 levels is hopefully part of a trend that will continue, and won't reverse. The reduction in the government workforce at the local and state level by almost 500,000 from their peaks in the summer of 2008 through March 2010 is the largest reduction in modern U.S. history, and greater (in absolute values) than the 333,000 decrease in state and local public employees over a comparable period in the early 1980s following the back-to-back recession of 1980 and 1981-1982. We can thank the Great Recession for 2007-2009 for what is possibly the largest reduction in state and public employees ever before in history.