Employment in the public sector: two recessions' impact on jobs

Monthly Labor Review, Oct, 2004 by Julie Hatch

Government employment surged during the 2001 recession, only to fall victim to prolonged budget shortfalls afterwards; compared with the 1990s recession and aftermath, the 2001 recession itself had less of an effect on government employment, but the postrecessionary period was more difficult.

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Since 1939, the public sector has increased its share of nonfarm employment by 3 percentage points. (1) Overall, 1 out of every 6 jobs in the nonfarm economy is now in government. The 2001 recession affected Federal, State, and local governments in various ways. The largest sector, local government, was influenced the least, although a reduced rate of employment growth was evident in both 2003 and the first half of 2004. State government employment, the most cyclical in nature, peaked months before Federal Government, but well after total private employment. The Federal Government created a new agency in the aftermath of the terrorist attacks on September 11,2001, while the U.S. Postal Service felt the brunt of the recession and continued experiencing financial difficulties. Growth in employment during and after the latest recession contrasts sharply with employment growth in the 1990-91 recession and subsequent recovery.

Total private payroll employment peaked in December 2000, but job growth in government boosted total nonfarm employment. The tide turned, however, when construction and information employment peaked in March 2001. Strength in government and in a handful of private service-providing industries (financial activities, health services, and leisure and hospitality) was not enough. Coinciding with the U.S. business cycle peak declared by the National Bureau of Economic Research, total nonfarm employment peaked in March 2001 and then declined until August 2003. (2)

The so-called jobless recovery of the 1990 recession became the period of comparison. The labor market continued to remain weak after the recession ended in March 1991, even as other parts of the economy gained momentum. (3) In fact, nonfarm employment remained relatively flat and did not recover until early 1993. Despite the "jobless" epithet, the labor market fared better following the 1990s recession than following the 2001 recession. (See chart 1.) Payrolls grew by 876,000 jobs 21 months after the end of the 1990s recession, compared with 1,082,000 jobs lost 21 months after the 2001 recession ended. Employment slowly started to recover in September 2003. Compared with employment in private industry, government employment fared better during the later recession, but faltered after it ended.

In order to get a better understanding of how the 2001 recession was different from the earlier one, this article examines employment in each component of government, along with total nonfarm employment, total private employment, and government employment as a whole. The latest recessionary period and recovery is compared with the 1990s recession and the subsequent recovery and expansion. Each level of government works with certain rules and agendas that can influence how a recession affects employment. The Federal Government does not work under a balanced-budget constraint, so it can incur deficits. Broad issues such as national security, infrastructure, international relations, and social welfare are the Federal Government's primary concern. State governments represent the agendas of the 50 States and the District of Columbia. By law, States must have a balanced budget each fiscal year. Local governments, which include those of cities and counties, are often in charge of implementing directives issued from Federal and State governments. Like State governments, localities also must balance the budget each fiscal year.

Government

During the 2001 recession, government gained nearly 400,000 jobs, a sharp contrast to the 72,000 jobs lost during the 1990s recession. (See table 1.) However, the job losses during the earlier recession were due mostly to the laying off of intermittent decennial census enumerators and not economic changes in the industry. Excluding Census effects, government employment continued to grow during the 1990s recession and subsequent recovery. (4) The growth came from State and local payrolls. (See chart 2.) In 1993, the Federal Government began to reduce its civilian employment, while other industries added jobs. The only sector besides State and local government to gain jobs at such a rapid pace throughout both recessions was private education and health services.

Even though government employment continued to grow during the 2001 recession, the momentum gained during the 1990s boom began to wear off. The public sector continued to add jobs, but at a reduced pace, until employment peaked in February 2003. Government reduced payrolls by 97,000 between the peak and June 2004, reflecting job losses in Federal Government.

Federal Government. Opposing employment trends in Federal Government resulted in flatness during the 2001 recession. Small employment declines in the U.S. Postal Service offset small gains elsewhere in the Federal sector. Excluding the Postal Service, Federal Government gained an average 2,000 jobs per month during the recession. In 2002, the hiring of Transportation Security Administration workers outweighed job losses associated with the Postal Service. Federal employment peaked in March 2003 and then declined by 73,000 over the next 15 months.