A new release by the Center for Budget and Policy Priorities (CBPP) shows that we've just completed the fifth straight year of unbroken private sector job growth and are entering the sixth. Not only have all the private sector jobs lost during the Great Recession been restored but we've added an addition nearly three and one half million to the economy producing an impressive recovery considering all the obstruction and outright sabotage from the Right we've endured. The report concludes that; "This is the 61st straight month of private-sector job creation, with payrolls growing by 12.1 million jobs (a pace of 199,000 jobs a month) since February 2010..." But it also quickly notes that the total number of net jobs added over this period was only 11.5 million since we have to consider the nearly 600,000 public sector jobs lost. The report notes, "...total nonfarm employment (private plus government jobs) has grown by 11.5 million jobs over the same period, or 189,000 a month. Total government jobs fell by 578,000 over this period, dominated by a loss of 361,000 local government jobs."
What makes the current recovery so different from the recoveries since the early 1980s is that this is the first time that not only didn't the public sector keep pace with population growth, there were actual significant job losses. This is an important reason that a full job market recovery took nearly seven years instead of an average of four. It is obvious that a vibrant public sector, whose growth keeps pace with population increases, is key to sustaining the overall health of the economy. Here is where public sector expansion could shore up the economy and break the current mini-cycle of ups and downs sending the economy on a long wave of overall growth.
Public sector employment is essential to sustaining the health of the economy. A couple of years ago, Tea Party Republican Carly Fiorina remarked on a popular news program that private sector jobs pay for themselves and thus create growth while public sector jobs are less productive because they draw resources that could be used more efficiently out of the private sector and thus ultimately become a long term drag on the economy. Economist Paul Krugman refuted the notion that the public sector "crowds out" private sector initiative creating opportunity costs. He said that public and private sector priorities are different but are equally as vital. In addition, public and private sector spending have the same level of stimulus on the economy or a similar multiplier effect. Krugman's argument finally rested on the idea that what government does is vital; far from being a barrier to economic growth it provides services that are a basic prerequisite to it. Heidi Shierholz, a Keynesian economist with the Economic Policy Institute replied to Fiorina's comment that, "Fiorina is wrong in implying that public-sector jobs don’t create other jobs. They have huge ripple effects into the private sector."
Jared Bernstein, a former economic advisor to President Obama, believes that robust public sector employment is vital to private sector job growth. The problem with the recovery from the Great Recession was that the pace of private sector job growth was slowed by the high rate of public sector job loss. Bernstein sees public sector job gains/losses as a vital policy variable that plays a large role in determining the pace of overall economic recoveries. He examines the comparative public sector job losses from the two recessions previous to the one in 2008 and finds that both of them were both more robust and quicker (with much quicker labor market recoveries) because unlike the most recent recession, the previous two (1990 and 2001) experienced significant public sector job gains while the opposite was true of the most recent recession. Most Keynesian economists, like Krugman, Bernstein and others, see a tremendous multiplier effect from public sector spending on the private sector.
EPI economists Heidi Shierholz and Josh Bivens assess the economy's recovery after four years and find that a massive jobs gap in the public sector is holding up faster growth. Noting first that public sector employment should rise naturally with population growth, the authors of the July 2013 EPI report note that the public employment to population ratio remained stable at about 7.3% from the late 1980s until the start of the 2007 recession. The sudden drop in the ratio to 6.9% due mostly to the budgetary constraints, mostly on states and localities, posed by the post-2008 crisis brought down public sector employment significantly costing private sector job growth in the process. The authors point out that if that ratio had remained at 7.3% all through the crisis period, "...we would have 1.3 million more public sector jobs today."
In an assessment in 2012, Shierholz and Bivens concluded that the drag on private sector job growth due to the loss of over half a million public sector jobs plus the absence of the more than half million jobs that should have been added due to the needs created by demographic change (for a total public sector gap of about 1.1 million jobs) was significant; the total public sector job deficit cost roughly 751,000 private sector jobs. Their reasoning was simple enough, the loss of public sector jobs deprived the private economy of the stimulus it normally receives from the spending linkages and multiplier effect of the public sector. The authors explain it this way;
First, public-sector workers need to use inputs into their work that are sourced by the private sector. Firefighters need trucks and hoses, police officers need cars and radios, and teachers need books and desks. When public-sector jobs are lost, it stands to reason that the inputs into these jobs will fall as well, and indeed research shows that for every public-sector job lost, roughly 0.43 supplier jobs are lost. Second, the economic “multiplier” of state and local spending (not including transfer payments) is large – around 1.24. This means that for every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy. Teachers and firefighters stop going to restaurants and buying cars if they’re laid off, which reduces demand for wait staff and autoworkers and so on. Add these two influences together (supplier jobs and jobs supported by this multiplier impact) and roughly 0.67 private sector jobs are lost for every public sector job cut.
A report from the Brookings Institute from just last summer noted that the public employment to population ratio was at a forty year low. The report concluded that "...stagnation in public-sector employment has dragged down the labor market recovery. If public-sector employment had remained constant as a share of the population, the total jobs gap would be roughly 28 percent smaller." According to economic forecaster Marc Zandi, "The job losses at state and local governments is the most serious weight on the job market,"
It seems that the failure of the US economy to achieve full employment is not based in the capacity of the US economy to absorb workers-we have the world's largest economy. What then is the major obstacle to full employment in the US. It's actually a matter of policy. Post Keynesian economist Michal Kalecki, writing in 1943, seemed to have a political answer to the question of full employment;
"...the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' [termination] would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system."
Kalecki is here applying a Marxist class analysis to the question of full employment noting that even where such a condition would boost profits in the short term through stimulus and increase output and spending, the idea is opposed because of the perceived long term effects on worker militancy that tight labor markets have historically meant. Note also the concern on the part of capitalists of the possible adverse effects on the so called "rentier" class (that is financial) through possible inflation that can result from an overheated economy. The federal reserve Open Market Committee seems to be discussing raising the federal funds rate over this very concern. This reflects a desire to calm the markets over the danger of inflation and a consequent decline in the dollar's exchange rate which would cost US investors in foreign denominated assets billions in losses from a devaluation of the US Dollar. But mostly, Kalecki tells us that the problem of achieving full employment is one of class power. If we want a government that is willing to pursue a real full employment agenda, we need to alter the balance of class power with movement, rather than, party politics, specifically with a rekindling of the American labor movement.