Could the government start hiring again soon?

Updated
Job seekers stand in line to meet with prospective employers at a career fair in New York City in this file photo taken October 24, 2012.
Job seekers stand in line to meet with prospective employers at a career fair in New York City in this file photo taken October 24, 2012.
REUTERS/Mike Segar

Since the global financial collapse of 2008, the United States has lost hundreds of thousands public sector jobs. In just the past four months, 89,000 of those jobs evaporated. According to the White House’s economic advisers, state and local governments have shed 300,000 education professionals alone since 2009. However, some economists think the bleeding could soon end.

“If you eyeball the trends in state budgets the last few months, they’ve been pretty flat,” Nick Johnson, the Center on Budget and Public Priorities’ vice president for state policy, told msnbc.  ”They could be bottoming out, and you could start to see growth again.”

Speaking to Bloomberg News, IHS Global Insight economist Jim Diffley was unequivocal in his optimism. “The bloodletting on the state and local government level has finally passed through,” he said. “They’re no longer subtracting from growth.”

Research by the Economic Policy Institute suggests that job losses in the public sector have done more to hinder the country’s economic recovery than just inflate unemployment numbers: they have also had a noticeable ripple effect through the economy at large. “If a teacher loses his or her job, they’re going to have less money in their pockets,” said EPI’s Heidi Shierholz. “So they’re going to buy fewer goods and services in the private sector.” Furthermore, she said, job losses in the public sector mean that state and local governments spend less to accommodate their staff. For example, if a local police force employs fewer police officers, then the municipal government buys and maintains fewer police vehicles. “When we start to hire teachers back, that also probably means that other kinds of spending will also come back,” said Shierholz.

The drop in public sector employment was a response to massive state and local government budget shortfalls, a direct result of the recession. According to a 2012 CBPP paper, “The budget gaps result principally from weak tax collections. The Great Recession that started in 2007 caused the largest collapse in state revenues on record.” Federal aide mitigated the damage, but not by much. States had to compensate with harsh budget cuts and massive layoffs.

Now the worst may be over. “The cuts have already been made,” said Johnson. “States have cut spending deeply in response, and it’s just that we’re now at the bottom of the hole as the economy starts to slowly come back. Additional cuts will not be needed, and in some places they’ll start adding jobs.”

Adding jobs, that is, if developments in Washington don’t make things worse. Johnson said that sequestration “would involve substantial cuts in federal funds to states,” and could result in further job losses if Congress fails to prevent it from taking effect.

Any alternative to sequestration that involves further economic belt-tightening would also take its toll. “If we see additional deficit reduction on a large scale that is achieved through spending cuts, those spending cuts are going to be borne by state and local governments to the largest degree,” said Johnson. “And that could indeed wipe out the growth of state and local governments.”

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Could the government start hiring again soon?

Updated