Threat from mounting public job losses tested Obama’s economic strategy

April 30, 2012
Washington Post
Zachary A. Goldfarb

As the economic recovery has struggled to pick up speed, one of the biggest stumbling blocks has been job losses in state and local governments, which have been on the rise for much of President Obama’s term.

Early on, Obama fought for aid that saved hundreds of thousands of these jobs, economists say. Yet a year later, when his economic advisers said another large round of aid was critical for the health of the economy, Obama declined to make it a key part of his agenda. His political advisers said such an effort would be fruitless. Republican opponents on Capitol Hill, including some who were glad to see the public sector shrink, were arguing that these jobs were not vital for the economy.

The White House economic team: These leaders are key advisers to President Obama on economic issues.

Today, as Obama seeks another term, the heavy job losses at the state and local level remain a significant economic concern. His response at different moments underscores how the president has sometimes fought hard against the political odds for policies he thinks crucial and at other times relented when the chances of success seemed low.

Since the beginning of his term, state and local governments have shed 611,000 employees — including 196,000 educators — according to government statistics. Unlike the recovery in private-sector employment that Obama and his reelection campaign often cite — with businesses adding 4 million jobs since hiring hit its low point in 2010 — the jobs crisis at the state and local level has continued throughout his term.

On Friday, new government data showed that economic growth slowed in the first three months of the year, in part because government at the local, state and federal level has been spending less money — money that could have fueled economic activity.

The state and local job losses are significant for several reasons, economists say. For one, these losses have a broad social impact. Laying off teachers means larger class sizes and fewer after-school programs, for example.

What’s more, federal aid can go directly to state and local governments to prevent job losses, a relatively effective way to sustain economic growth. (Tax cuts, by contrast, can lead indirectly to job growth if they increase the amount of money consumers spend.)

“The job losses at state and local governments is the most serious weight on the job market,” said Mark Zandi, chief economist at Moody’s Analytics, who has advised both parties.

But others have viewed the job losses differently, saying they help shrink excessive public payrolls.

“We’re not going to get this economy going by growing the government,” Senate Minority Leader Mitch McConnell (R-Ky.) said last year. “It’s the private sector that’s ultimately going to drive the recovery.”

Andrew Biggs, a scholar at the conservative American Enterprise Institute, said that nobody wants people to lose their jobs unnecessarily but that it was right for the federal government not to do more to save these positions, because state and local governments had become bloated.

“It strikes an emotional chord with people if we have teacher layoffs, but we have hired a great many teachers in the past several decades,” Biggs said. He added that the layoffs “ultimately get you closer to where you should be in terms of the size of the public-sector workforce.”

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