Public Sector Jobs Losses Hurt the Economy

Everyone in both political parties says they want to bring down unemployment, and that sense of urgency is sure to grow after today's dismal job numbers, which show unemployment creeping up to 9.2 percent.

Given that high levels of joblessness are proving more stubborn than anticipated, now is a good moment to restate an obvious point: The single easiest way to keep people employed -- and the one most clearly within the power of elected officials -- is to stop laying off workers in the public sector.

Today's job numbers show once again how cuts in government payrolls are keeping the economy stuck in neutral. Even as the private sector added an anemic 18,000 jobs in June, the public sector -- federal, state, and local government -- handed pink slips to 39,000 workers. Three quarters of the public job losses at the local level were in education, many of them teachers.

Last month's job report (for May), drew a picture that was only marginally cheerier: The economy added 54,000 jobs even as government at all levels fired 29,000 workers.

And here's a really depressing number: The public sector has laid off 446,000 workers since September 2008, when Lehman Brothers collapsed. It turns out that President Obama, widely criticized as a big government liberal, has presided over one of the sharpest overall contractions of public payrolls in memory.

Conservatives argue that fiscal austerity will help revive the economy, but what austerity means is often vague and described as the elimination of wasteful "programs." In fact, the most concrete result of budget cuts -- particularly at the state and local level -- are layoffs.

Maybe I'm missing something, but firing people seems like the exact wrong way to boost economic activity or reduce the deficit over the long-term. Most obviously, unemployed workers don't have discretionary income to pump into the economy. Less obviously, they are far more likely to face foreclosure on their homes. The high foreclosure rate, which is inextricably linked to high unemployment, is a major factor pushing down home prices -- which means that the Americans who do have equity in their homes are getting poorer ever day as the value of their homes decline. And what do you do when your wealth is declining? Save more and spend less.

A lagging economy helps keep deficits high by keeping tax revenues low. And the specific savings from whacking government jobs are not as great as you might think. Assuming that public workers pay an average of 30 percent of their wages in federal, state, and local taxes, firing such a worker only saves 70 percent of their salary. But the savings are even smaller than that, since the first thing a fired worker does is get unemployment benefits and maybe sign up for food stamps, Medicaid, childcare subsidies, and other means-tested benefits. The average employment benefit is $295 a week. So assuming that all 39,000 public sector workers fired last month sign up for unemployment, the government will be shelling out $46 million this month -- and for months to come -- to cover benefits for just this latest round of public sector layoffs.

What's the alternative to cuts? More borrowing by government until the economy rebounds, as well as raising more revenues to avoid cuts. Republicans are the main obstacles to this solution, but not the only ones. Democratic leaders have also chosen layoffs over spending cuts in some states, such as in New York where Governor Andrew Cuomo allowed a surtax on the wealthy to expire while pushing through major budget cuts.

Thanks to Cuomo -- who should know better -- New York is likely to lose 9,800 public jobs due to budget cuts enacted this spring. This in a state where unemployment hovers around 8 percent.