A More Important Deficit: The Jobs Deficit

Yes, the jobs scene is getting better. But it's obviously not back where it should be yet, and for more than one reason.

From "Closing America’s Jobs Deficit", Laura Tyson reports that

"Public-sector demand has also contracted, owing to state and local governments’ deteriorating budgets. As a result, public employment, which usually rises during recoveries, has been a major contributor to high unemployment during the last three years. Despite a modest uptick in the last three months, government employment is 569,000 below its June 2009 level – a 30-year low as a share of the adult civilian population. According to Hamilton Project calculations, if this share were at its 1980-2012 average of about 9.6% (it was actually higher between 2001 and 2007), there would be about 1.4 million more public-sector jobs and the unemployment rate would be around 6.9%."

This may not be stunning news to those of us who've already been lamenting that aspect of layoffs stunting our recovery, but it's certainly worth highlighting again ... especially that we would have an unemployment rate somewhere around a full point lower if it weren't for the public sector layoffs. Obviously, if it weren't for contractionary fiscal policy (govt budget cuts), we'd have a far better employment situation.

And what is a certain party calling for? More contractionary fiscal policy.

Tyson also note some interesting points about the jobs that are out there, the differences in unemployment for those with less education versus those with more education, and that:

"... recent study by McKinsey suggests that the gaps in educational opportunity and attainment by income impose the equivalent of a permanent recession of 3-5% of GDP on the US economy."

Payrolls During President Obama's Term

What's the direction of the jobs picture?

Total non-farm payrolls (the early/mid 2010 spike in the curve is because of temporary census activity):

Private payrolls:

Government payrolls (trend of state/local budget cuts bringing govt employment down):

Updated Job Picture Under President Obama

How's the job picture look under President Obama's term in office so far? Not only did payrolls stop the inherited plummeting but also private sector jobs have strongly, steadily grown since turning around in February 2010. Meanwhile, aside from the Census spike, steady govt cuts -- mainly at the state and local levels -- have taken government payrolls in the opposite direction.

We have here a good, solid private recovery that's impeded by heavy govt cuts diminishing it from how good it'd be otherwise. Below, we can see roughly the hypothetical difference that govt cutbacks (aside from the brief census surge) have made to the overall employment picture by looking at total employment assuming private sector hiring had still followed exactly the path it did and govt payrolls had held steady at February 2009 levels.

The adjusted line likely understates how much it would have helped to avoid the govt cutbacks. After all, those laid off govt workers couldn't buy as many goods and services, so there would arguably have been more demand fueling more private sector jobs and making the private component grow faster if we hadn't had cutbacks. But for the chart above, the only adjustment reflected in the green line versus the blue line is a freezing of govt payrolls at precisely the February 2009 level. A more complete picture of the difference cutbacks made would reflect an estimate of anticipated higher private payrolls resulting from avoiding the govt layoffs.