I found this graph (hat tip: Bill McBride) very interesting. Here’s the story that Bill tells about it:
Here is a graph of the annual change in government payrolls since 1970. Over the last 3 year government employment has decreased significantly (this is a combination of Federal, State and local government). It appears job cuts will slow in the first half of 2012, and government employment might be neutral in the 2nd half of this year.
For 2011, the BLS reported 280 thousand government jobs lost, and my guess is this will slow to around 100 thousand in 2012 and most of the jobs lost will be in the first half of the year.
I think that there are any number of other stories that could be told about it. Here’s what the graph says to me.
Over the period of the last thirty years federal, state, and local governments have taken on new employees at a far faster rate than the increase in population overall not to mention a faster rate than the increase in private sector employment. The employees taken on in the 70s and 80s are now beginning to retire with pensions in excess of what, by and large, have been available in the private sector for decades. State and local governments that have not prepared for this adequately (most of them) see their budgets being squeezed. Additional budget pressures have come about as a consequence of contractual pay raises for government employees and declining revenues as a result of the recent economic downturn. As a consequence they’ve laid off a significant number of government employees. The number laid off is a small fraction of the astonishing increase that has occurred over the period of the last thirty years. Despite the reduction of state payrolls state budgets did not decline last year.
If Keysnesian stimulus works as advertised it would be nice if state and local governments hadn’t hired all of those people over the last thirty years so they could afford to hire a few more now rather than laying off employees. If state and local governments had more contract flexibility they wouldn’t need to lay off employees, either.
The moral: it is best to prepare for the days of necessity.