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Thursday, March 3, 2011

The Jobs Paradox

Every political action has a reaction when it comes to money. By that I mean that well-meaning efforts to restrain costs or cut spending on the one hand mean that someone who would have been on the receiving end of that money is no longer going to get it.

We are in a fascinating but somewhat paradoxical situation at the moment. Americans clearly tell us that jobs are the most important problem facing the United States. A new Wall Street Journal/NBC News poll measured priorities for Congress in a different way and found the same thing. Jobs are the top priority.

Yet at the same time, we have mighty efforts underway to cut spending on healthcare, and to cut government spending at both the federal and state levels. Cutting back spending in both of these areas will no doubt cost jobs.

We have no further to go to show this than in a fascinating table included in my colleague Dennis Jacobe’s recent analysis of job creation in this country.

Note the good news:  the overall job creation situation among all U.S. workers has been improving. But at the same time the job creation situation at the federal government level has been deteriorating. This reflects, no doubt, the general shift in federal government thinking toward the need for frozen budgets, with the concomitant slowdown in hiring at federal government departments and agencies.

As recently as last October, reports of hiring and firing among those federal government workers we interviewed were more positive on balance than the reports of all U.S. workers. (The latter group, of course, is dominated by the private sector.) Gallup’s Job Creation index among federal government workers was at a +17 in October 2010 -- well above the +10 among all U.S. workers. Fast forward to last month.  The Job Creation index as reported among federal government workers has plummeted to +1, now well below the +12 among all U.S. workers.

The federal government, in other words, is no longer providing the booming employment market that it was.

If anything, with the current efforts by House Republicans to cut back on the budget dramatically, there will be even less federal hiring in the months ahead.

Remember that our analysis of Job Creation in 2010 showed that both the District of Columbia and Maryland were in the top 10 states in terms of job creation -- fueled, no doubt, by the boom in the federal government. Now, I would think that when we tally up the same numbers at the end of this year, we will find a change. It’s quite possible that D.C. and Maryland will fall out of the top 10.  The driving economic engine of these area's prosperity -- the federal government -- is throttling back.

One person’s cup of tea is another’s poison. Cutting back on federal (and state and local) employment makes perfect sense from a financial perspective focused on ballooning deficits and increasing taxes. But cutting back on federal (and state and local) employment makes perhaps less sense from the perspective of someone who works for the federal (or state or local) government.

Of course at previous times in U.S. history, the government created jobs out of thin air to help employ people, including most famously the Civilian Conservation Corps. Now, we have a juxtaposition of sorts, with the effort to both increase jobs on the one hand, but cut back on spending that leads to government jobs on the other. It’s going to be interesting to see how this plays out.

And, we have a somewhat similar situation when it comes to the healthcare system. There is great agreement that one of the most efficacious ways to cut back on healthcare costs is to make Americans more healthy, so that they need fewer health services, and to cut back on unnecessary tests and procedures. But if Americans need fewer health services and take fewer tests and have fewer procedures, then there will need to be fewer healthcare workers providing those services, tests, and procedures.

The high rates of obesity in the U.S., to take one example, have resulted in a boom employment picture for those who work in the diabetes care industry, for those who work in cardiovascular units of hospitals, and for those who work for the billion dollar weight loss industry. A healthier, slimmer America will be an America that spends less money in all of these areas -- costing jobs.

Of course, the hope is that with less spending by the federal government and less spending on unnecessary or preventable healthcare, more money will be available to spend in other areas. That may be the case, but in the short-term, these efforts to control costs and spending may have disruptive effects on America's employment picture.


Anonymous said...
March 10, 2011 at 5:56 PM  

Cutting spending doesn't always make sense from a fiscal perspective too. If you cut too deeply, you neuter the economy and eviscerate tax revenues. If you cut spending 5%, and that causes an economic slowdown that causes tax revenue to drop by 7%, then cutting spending made the deficit worse.

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