What Story Does This Tell?

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.

6 comments… add one

  • Drew

    Hey norm will be apoplectic.

    In finance the concept is called a sinking fund. Pop reference is to a rainy day fund.

    Politicians despise the concept, preferring a reliable voting bloc.

  • PD Shaw

    It would be interesting to see a break-down between federal government employment and state/local. I suspect they should not be combined. Illinois is projecting 9% cuts across the board this year, so I’m skeptical about positive changes here. The cuts appear primarily to be caused by increased pension payouts and Medicaid, both of which appear to be projected to increase over time, while revenues remain relatively static. Thus any increase in revenue will not go to government workers, it will be distributed to the medical care industry and the pension system.

  • PD Shaw

    Looking closer at the BLA employment numbers for government over the last ten years:

    _State Government Education_ employment has increased for several years without any pause for the recession. Its the only segment of government doing this.

    _Federal U.S. Post Office_ and _State Government NonEducation_ have been decreasing steadily for ten years. Its not clear how or whether the recession has effected these segments. Are these segments becoming more productive, or are funds being shifted to education?

    Local government, particularly in education, has been hard hit by the recession; employment levels are at 2005/2006 levels. It seems to be more closely tied to the boom/bust cycle of the recession.

  • steve

    “Over the period of the last thirty years federal, state, and local governments have taken on new employees at a far faster rate”

    This is wrong. It should read state and local government. As PD notes above, the number of federal employees has been pretty stagnant for a long time. This is one of the major uncovered stories in our economic discussions. Most attention is paid to federal numbers, but it is at the state and local level we have seen employment grow. The growth in the federal govt comes largely through entitlement spending, ie, Medicare.

    Steve

  • Drew

    Steve

    They have simply crammed down the issue to the local level. Smoke and mirrors.

  • The real smoke and mirrors is the way that outside contractors have been used where employees would have been cheaper. That’s particularly true in the military where decreased allotments have been subverted by hiring contractors.

    Executive branch civilian employees have remained more or less constant, uniformed military has decreased, legislative and judicial staff have increased, contractors have increased dramatically.

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