In May, 30,000 jobs were lost as state and local government employees were laid off. Without those losses, the net jobs created would have totaled 84,000. That's still not wonderful, but it's certainly better than the 54,000 that we saw during the month. Unfortunately, this result isn't new: state and local government layoffs have been a headwind to a labor market recovery since the financial crisis hit its climax in the fall of 2008. How bad has it been?
Here's a chart that shows the picture pretty clearly:
There's a lot going on here. First, the green bars represent the number of jobs added or lost in state and local governments each month. You can see that job growth was generally in the range of 20,000 per month throughout 2006 through mid-2008. Then the economy collapsed, and so did state and local government budgets.
At that time, the layoffs began, and then intensified. They continue even today, as the private sector has consistently hired additional workers since March 2010.
The red line shows the total number of state and local government jobs combined. They peaked in August 2008 at 19.8 million. Since that time, they have fallen below 19.3 million. That amounts to more than a half million jobs lost.
To be sure, these jobs alone wouldn't fix the broader unemployment problem. But another half million employed workers certainly would help -- the unemployment rate would be 8.7% instead of 9.1%. More employed workers would also mean additional consumer demand for goods and services in the economy, which would spur additional hiring. So had these workers not been laid off, it's plausible to assume that the private sector would have hired more aggressively as well.
As I wrote earlier, the government can only do so much to encourage firms to hire, but it can help to reduce the number of layoffs by state and local governments. If it has the power to prevent tens of thousands of job losses each month, then why isn't it acting?
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