NC Budget and Tax Center

Government layoffs increase nation’s unemployment

Contrary to the notions of austerity economics, three years of budget cuts and government layoffs have only served to weaken the nation’s recovery. As seen in the latest issue of Prosperity Watch, new research convincingly demonstrates that government layoffs only lead to greater unemployment in difficult economic times. In short, we can’t reduce unemployment by increasing the number of the unemployed. For more details, see Prosperity Watch.

11 Comments

  1. Frank Burns

    August 15, 2012 at 2:18 pm

    The key to economic progress in this country is to stimulate the private sector not the government sector. Obama never understood this and thought that by giving the states grant money to help pay their bills would stimulate the economy, it failed. If you look at his budget, he wanted to do the same thing all over again. His budget got zero votes, not even a single wayward Democrat voted for it.

  2. Doug

    August 15, 2012 at 7:32 pm

    California tried to do the same thing, and look at them now– a darn mess !

  3. Allan Freyer

    August 16, 2012 at 9:17 am

    Frank, the non-partisan Congressional Budget Office has found that the stimulus was indeed successful in terms of staving off steeper losses to GDP and employment at the outset of the recession (http://www.cbo.gov/publication/42715).

    Specifically, the package:
    1. raised real (inflation-adjusted) GDP by between 0.3 percent and 1.9 percent
    2. lowered the unemployment rate by between 0.2 percentage points and 1.3 percentage points,
    3. increased the number of people employed by between 0.4 million and 2.4 million, and
    4. They increased the number of full-time-equivalent jobs by 0.5 million to 3.3 million.

    As we like to say around the office, facts matter more than talking points.

  4. frances

    August 16, 2012 at 10:01 am

    Allan, the long term effect was zero as judged by the current economy, and we are now several trillion more in debt. It’s nothing more than giving a fix to a drug addict.

  5. Allan Freyer

    August 16, 2012 at 10:12 am

    Frances, thanks for your comment. Could you elaborate on what you mean by “the long-term effect was zero judged by the current economy?” The CBO report makes it clear that the levels of growth, jobs, etc we have today would not exist if not for the stimulus. If you are saying that the effect of stimulus petered out over time, this is not supported by the CBO report, nor by surveys of other economists on this issue.

    And given that 45% of the stimulus bill’s price tag came from tax cuts, are you arguing that taxes should have been higher over the past three years?

  6. Allan Freyer

    August 16, 2012 at 10:15 am

    To clarify one point, the effect of the stimulus is built into the new employment and GDP baselines, so while the stimulus was intended to be temporary and is phasing out over time, the effect of the package is ongoing.

  7. Frank Burns

    August 16, 2012 at 4:37 pm

    Allen,
    Sometimes I think you all create your own reality. You craft a story line and ask the CBO to provide a good answer based on constraints that you create. The economy is driven by the private sector which finances the public sector. Giving grants to government agencies does nothing for the economy. Yes a few government workers are hired but what have we accomplished with paying people to twiddle their thumbs? All it does is increase our debt. Are you a communist or something?

  8. Allan Freyer

    August 16, 2012 at 5:00 pm

    Frank, a simple question for you: is any amount of government spending equal to “communism,” and if not, at what percentage of GDP does government spending suddenly move an economy from “capitalism” to “communism.”

    I’m bearing with you here, in the spirit of open discussion we try to promote on this site, but if you continue to violate our posting conditions with personal insults (and suggesting I’m a communist counts as a personal insult), I’ll have to remove your comments.

  9. Frank Burns

    August 16, 2012 at 9:38 pm

    Allan,
    I apologize for calling you a communist but I interpreted your comments as supporting increased government spending just to create make work jobs. That’s not what our country is all about. Traditionally our government is there to support private industry, not to be the focus of our economy. A strong private economy is what we need with the minimum government necessary for critical services. Our federal bureaucracy has gotten too big and we cannot afford to do everything that we are doing now. It needs to be reduced in size not increased.

  10. Allan Freyer

    August 17, 2012 at 9:30 am

    Frank, apology accepted.

    A strong private economy is unquestionably critical for long-term, sustainable economic growth and increased prosperity. Our research shows, along with the research of most mainstream respected economists, that the public sector plays an important role in facilitating private sector growth. Roads, brdiges, teachers, research, national security, income security, and public health, all of these publicly funded efforts improve the ability of private business to make money. And this is in addition to the direct economic impact government employees have on the private sector–they spend their paychecks at private businesses, their offices purchase the goods and servcies of private businesses through government contracting, and the this money ripples through the economy, the more these businesses can hire.

    If govermment employment was 100% of the national economy, then, yes, that would clearly inhibit private sector development, but what the Prosperity Watch piece discussed was increasing public sector employment from 9.4% of total employment (the post-recession average) to 9.7% (the pre-recession average). This hardly seems like communism. But this 0.3-point increase would reduce unemployment by 1.7 million jobs, creating 1.7 million new customers for private businesses.

    The point here is that the private sector and public sectors are *related,* and one cannot exist without the other.

  11. Frank Burns

    August 17, 2012 at 10:24 am

    Allan,
    I don’t agree with the approach to increase public sector employment to meet some target percentage. Public sector employment should be based on need. Many would question the need to have a large Department of Education or the need for several federal agencies looking at the climate, or the need to have the Federal Government involved with entertainment or news programs. With the federal deficit continuing to grow by alarming amounts, at some point we need to address cost reduction. Our focus to reduce unemployment needs to be directed towards private industry and production, this focus should be uniform with all government agencies. Before they issue a new regulation, they should consider the impact that regulation will have on private industry. Before the State Department issues a grant, they should consider the impact that grant recipient is having on American industry. It should be our focus and unfortunately, its not.