Two Important New Studies: Spending = Jobs

It's going to be impossible for Obama and the Democrats to say what I'm about to write here and get any traction with it, so just to be clear, I know that going in. The political discourse is built around sound-bites that seem credible, not facts. But these are facts. Please read.

From the Economic Policy Institute comes a report today on public-sector job loss, which as you know is a favored topic of mine. The number of public-sector workers has decreased in this recession from 7.3 workers per 100 adults, an average the United States has maintained since the late 1980s, to something well under that. If we had stayed at the 7.3 figure, and given that population has grown by nearly 7 million since June 2009, that would have meant 1.1 million more public-sector workers on payrolls.

And that, of course, would have had a knock-on effect in the private sector. EPI:

...public-sector job cuts also cause job loss in the private sector, for a couple of reasons. First, public-sector workers need to use inputs into their work that are sourced by the private sector. Firefighters need trucks and hoses, police officers need cars and radios, and teachers need books and desks. When public-sector jobs are lost, it stands to reason that the inputs into these jobs will fall as well, and indeed research shows that for every public-sector job lost, roughly 0.43 supplier jobs are lost.[3]

Second, the economic “multiplier” of state and local spending (not including transfer payments) is large – around 1.24.[4] This means that for every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy. Teachers and firefighters stop going to restaurants and buying cars if they’re laid off, which reduces demand for waitstaff and autoworkers and so on. Add these two influences together (supplier jobs and jobs supported by this multiplier impact) and roughly 0.67 private sector jobs are lost for every public sector job cut.   This means that the public sector being down 1.1 million jobs has likely cost the private sector 1.1 million*0.67 = 751,000 jobs.

Bottom line: If all this had happened, the unemployment rate would be about a point lower than it is today. Yes, the deficit would be higher. But 1.85 million more people working would be a good thing.

Second, from Brookings' Hamilton Project comes a study finding that states that increased their per-capita public expenditures during the recession suffered less job loss. A lot of these increases in state spending were tied to...yep, the stimulus bill:

Those states that increased per-capita expenditures the most experienced the smallest rises in unemployment rates, while those that increased expenditures the least experienced the largest rises in unemployment. Although state governments certainly played a role in shaping their economic situations, much of the increased state spending was financed by the American Recovery and Reinvestment Act (the federal stimulus plan), which put significant amounts of money directly into depleted state coffers.

Yes, EPI is left-leaning. Hamilton is center-left. Make what you wish of that. But the facts are the facts. It's just a shame that there isn't more room for them in this town.