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Job Losses and State Fiscal Crises: Time for More Federal Stimulus Spending

The numbers from this month's job report were brutal: 263,000 payroll jobs lost in a month and the unemployment rate hit 9.8 percent.  Since the pre-recession peak, the economy has lost 7.2 million jobs and overall hours worked have now declined by 8.6 percent.  A record share of the unemployed (35.6 percent) are “long-term unemployed” and have been out of work for at least six months.  (See graph courtesy of Center for American Progress)

Public Layoffs Threatening to Make Things Worse:  One of the most disturbing parts of this trend is that the government sector lost 53,000 jobs in September, compared with a loss of 19,000 jobs in August.  This is tied to the fiscal crisis hitting the states. 

The initial federal recovery funds from the Spring have held off far worse cuts than were originally projected; in fact, before last month, state and local government layoffs had amounted to just 110,000 jobs lost over two years.  However, projections are that fewer recovery funds will be available for fiscal year 2011, so government job losses will inevitably mount as states seek to balance their budgets going into next year.

Avoiding Fifty Herbert Hoovers with a New Stimulus:  History tells us that government should be hiring when the private sector is laying people off to act to act as a counter-cyclical economic lever on the economy.  A wide range of economists, including Nobel Laureates Paul Krugman, Robert Solow, and Paul Samuelson, are now calling for an additional federal stimulus to counter these jobs losses.

Back in February, as we noted at the time, the U.S. House had originally proposed tens of billions of dollars more in help for the states in the recovery plan, but those funds were cut during U.S. Senate negotiations to overcome a filibuster.  But this reflects the fact that even then, many understood that more help to the states was needed to deal with the severity of the recession we face. 

Already the Obama administration is talking about a broader transportation bill, extensions of a homebuyer tax credit and extended unemployment benefits as part of additional spending to deal with the economic crisis.  All of these are necessary, but priority should be to extend further aid to the states to stem the layoffs of teachers, nurses, and public safety officers which is needed not just to avoid further unemployment but is critical to provide the services to a public in even greater need of help during this economic crisis.  And other funds should go directly towards additional forward-looking job creation programs tied to green jobs, broadband deployment and rebuilding our overall infrastructure to both employ people in the short-term while improving the global economic competitiveness of our communities over the longer-term.

Resources:
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Center for Economic and Policy Research - Decreased Jobs and Hours Push Economy Back to 1997 Hours Level
Center for American Progress - Job Prospects Remain Dim for Millions of Workers
CEPR - Economists Who Make the Third Stimulus Honor Roll
Progressive States Network - Recovery Deal Reached; State Aid Slashed Compared to House Bill