In our opinion: Public sector trade-offs: reducing public employment is not the best way to manage public finances

Published: Saturday, Aug. 4 2012 12:00 a.m. MDT

In this file photo, Cami Tolbert views employment information while attending a Global Recruiting Solutions job fair in Livonia, Mich. A messy jobs report this week showed the official unemployment rate creep upwards.

Paul Sancya, Associated Press

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Yesterday's messy jobs report provides a Rorschach test to those watching and commenting on the economy. Should you be inclined to see the glass as half empty, you would no doubt focus on how the official unemployment rate crept from 8.2 percent to 8.3 percent.

If, however, you are inclined to see the glass as half full, you would emphasize the somewhat larger than expected growth in payrolls (163,000) with fewer seasonal layoffs than normal in auto manufacturing.

The reality is that there is no clarifying trend in this month's official employment figures.

If, however, we consider the long-term employment trends there is a distinctive downward trend in public employment. Although the United States has enjoyed 29 consecutive months of private-sector job growth, public sector employment has declined to its lowest level in over 30 years.

According to a report by Adam Looney and Michael Greenstone at the Hamilton Project, since the end of the recession, public sector employment has shed 580,000. Since 2009, more than 220,000 public school teacher jobs have disappeared.

State and local governments, faced with the brutal arithmetic created by balanced-budget requirements and falling tax revenues have been forced to reduce their personnel costs.

At first blush, this downward trend in government payrolls might signal a very welcome pruning of runaway public sector growth. According to Matthew Mitchell at George Mason University's Mercatus Center, state and local governments (using inflation adjusted figures) are spending nearly 13 times as much as they did in 1950. Over that same period, the private economy has only grown five times — suggesting that the overall growth in the public sector is unsustainable.

But on second blush, we can't help but notice that the discretionary spending represented by many jobs is not the real structural spending concern. Although it is imperative that we find operational efficiencies in government, it is government entitlement spending, not government operations per se, that is crowding out everything else.

Consider the following analysis by Jessica Perez, Gabe Horowitz and David Kendall at Third Way. In 1962, 14 cents of every federal dollar not going to interest payments was spent on entitlements. Today that amount is 47 cents. And absent fundamental reform, by 2030, that amount will reach 61 cents.

In effect, baby boomers are funding the security of their golden years by nickel-and-diming their grandchildren and great-grandchildren.

By way of example, the decline of more than 200,000 teachers in the last few years will save over $11 billion annually. But it has already increased the average class size. The corresponding 5.9 percent increase in the student-to-teacher ratio in America's classrooms could, according to the Hamilton Project, reduce the future earnings of America's students by nearly $1,000 per year. If accurate, the resulting present value cost of increasing class sizes would be more than four times the current budget savings.

Our purpose is not to quibble over the specifics of this particular study, nor is it to advocate for increases in public employment. But we would urge voters and legislators alike to soberly face the stark reality of the important public sector trade-offs being made. Public expenditures as a percentage of the economy are too high. But not if those expenditures are equivalent. Some represent investments in the future while far too many are zero sum wealth transfers from one group or generation to another. It is time we learned the difference.

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