NPR

Divergent Labor Markets: Private Gains, Public Losses

Job applicants meet potential employers at the NYC Startup Job Fair in September. Last month, the private sector created jobs while the public sector resumed laying off workers. (Getty Images)

The last unemployment report before the election came out Friday, and the news was middling: Unemployment ticked up to 7.9 percent.

The private sector created more than 180,000 new jobs, but state and local governments resumed laying workers off. That discrepancy is part of a longer-term trend.

For a few years now, private sector employment has been growing, but since mid-2010, state and local governments have eliminated roughly half a million jobs.

"There's real consequences to these huge cuts in the public sector, for overall growth in the economy and for public services that we all need," says Sylvia Allegretto, labor market economist at the University of California, Berkeley.

She says close to 40 percent of all the public-sector jobs losses have come in California.

"Class sizes are increasing because we laid off a ton of school K-12 teachers," she says. "Our police department, which we've had to lay off a lot of those officers, is struggling."

Distributing Stimulus

But to really tell the story of these two labor markets, you have to go back four years, to the beginning of the financial crisis. In early November 2008, Barack Obama had just been elected president.

The economy was in turmoil, and the October job report had just come out: 240,000 jobs had been cut and the unemployment rate hit a 14-year high of 6.5 percent.

Those numbers were horrible, but they actually understated the real scale of the crisis.

Even before he was elected, Obama was pushing for a stimulus bill that was supported by a broad coalition of groups.

But by the time that stimulus bill was passed and signed into law in February 2009, more than 2.2 million more jobs had disappeared. The bill's effect on private-sector employment has been debated ever since.

The next year, however, the number of government-sector jobs remained relatively stable.

"We didn't start losing these jobs immediately," Allegretto says.

She says there is often a lag in a downturn before governments start laying people off: "It takes time for the government to institute their austerity measures."

But there was another factor, too. Even though many state and local budgets were decimated, the stimulus bill offered those governments more than $53 billion in aid. That cash prevented hundreds of thousand of layoffs, at least for a while.

Lagging Public Sector Losses

By 2010, the private labor market had begun to show signs of life. At the same time, stimulus aid to state government had begun run out.

"The large losses in the government sector actually started occurring once the recovery was underway," Allegretto says.

And the political climate had changed. The newly elected Republican House had no appetite for another stimulus. Without more federal aid, local governments started to lay off workers.

Allegretto believes those layoffs created another powerful drag on the economy, but most economists on the right don't share that view.

"You can have a fiscal expenditure to try to hire workers or keep workers in their jobs, but someone has to pay for that. That doesn't come for free," says University of Chicago professor Randall Kroszner, who served on President George W. Bush's Council of Economic Advisers.

"It's very important for sustainable, overall economic growth to be creating private-sector jobs," he says. "The government perhaps can provide a stopgap, but that's very, very temporary at best."

Instead, he prefers to see the federal government hold the line on new spending and then do everything it can to help the economy grow up around it.

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Transcript

SCOTT SIMON, HOST:

This is WEEKEND EDITION from NPR News. I'm Scott Simon. The government's last employment report before the election came out yesterday and the news was kind of middling. The unemployment rate ticked up to 7.9 percent as more Americans joined the labor force. Private employers created more than 180,000 new jobs, but state and local governments resumed layoffs. NPR's Steve Henn reports that this is part of a longer-term trend.

STEVE HENN, BYLINE: For a few years now, private sector employment has been growing, but since mid 2010, state and local governments have eliminated roughly a half-million jobs.

SYLVIA ALLEGRETTO: There's real consequences to these huge cuts in the public sector for overall growth in the economy and for public services that we all need.

HENN: Sylvia Allegretto is an Oakland resident and a labor market economist at the University of California, Berkeley. She says close to 40 percent of the all public sector jobs losses have come in California.

ALLEGRETTO: Class sizes are increasing because we laid off a ton of school K-12 teachers; our police department, which we've had to lay off a lot of those officers, is struggling.

HENN: But to really tell this story of two labor markets, you have to go back four years, to the beginning of the financial crisis. In early November 2008, Barack Obama had just been elected. The economy was in turmoil, and the October job report had just come out.

(SOUNDBITE OF ARCHIVED TAPE)

UNIDENTIFIED WOMAN: First, that unemployment report from the labor department, it showed that employers cut 240,000 jobs in October and the unemployment rate hit a 14-year high of 6.5 percent.

HENN: Those numbers were horrible, but they actually understated the real scale of the crisis. Even before he was elected, Obama was pushing for stimulus. A broad coalition of groups supported the bill.

(SOUNDBITE OF ARCHIVED TAPE)

SENATOR BARACK OBAMA: From the Chamber of Commerce and the National Association of Manufacturers, as well as the AFL-CIO.

HENN: By the time that stimulus bill was passed and signed into law in February 2009, more than 2.2 million more jobs had disappeared. And the bill's effect on private sector employment has been debated ever since. However, the next year, the number of government sector jobs remained relatively stable.

ALLEGRETTO: We didn't start losing these jobs immediately.

HENN: Sylvia Allegretto says there is often a lag in a downturn before governments start laying people off.

ALLEGRETTO: It takes time for the government to institute their austerity measures.

HENN: But there was another factor, too. Even though many state and local budgets were decimated, the stimulus bill offered those governments more than 53 billion dollars in aid. That cash prevented hundreds of thousands of layoffs - at least for a while. By 2010, the private labor market had begun to show signs of life. At the same time, the stimulus aid to state government had begun run out.

ALLEGRETTO: The large losses in the government sector actually started occurring once the recovery was underway.

HENN: And the political climate changed.

REPRESENTATIVE NANCY PELOSI: I now pass this gavel and the sacred trust that goes with it to the new speaker.

HENN: The newly elected Republican House had no appetite for another stimulus. Without more federal aid, local government started to lay off workers. Allegretto believes those layoffs created another powerful drag on the economy, but most economists on the right don't share that view.

RANDALL KROSZNER: You can have a fiscal expenditure to try to hire workers or keep workers in their jobs, but someone has to pay for that. That doesn't come for free.

HENN: University of Chicago's Randall Kroszner served on President George W. Bush's Council of Economic Advisers.

KROSZNER: It's very important for sustainable overall economic growth to be creating private sector jobs. The government perhaps can provide a stopgap, but that's very, very temporary at best.

HENN: Instead, he prefers to see the federal government hold the line on new spending and then do everything it can to help the economy grow up around it. Steve Henn, NPR News. Transcript provided by NPR, Copyright NPR.

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