American Austerity Fail

Keynesian economists, notably Paul Krugman, have been calling for an increase in government spending as a means of pulling the country out of high unemployment. Phil Izzo of the Wall Street Journal looks at what the unemployment rate would be had government spending cuts not been implemented in the past few years. [emphasis mine]

While most industries have added jobs over the past three years, the recovery has largely bypassed the government sector.

Federal, state and local governments have shed nearly 750,000 jobs since June 2009, according to the Labor Department‘s establishment survey of employers. No other sector comes close to those job losses over the same period. Construction is in second worst place, but its 225,000 cuts are less than a third of the government reductions. To be sure, construction and other sectors performed worse during the depths of the recession, but no area has had a worse recovery.

A separate tally of job losses looks even worse. According to the household survey, which is where the unemployment rate comes from, there are nearly 950,000 fewer people employed by the government than there were when the recovery started in mid-2009. If none of those people were counted as unemployed, the jobless rate would be 7.1%, compared with the 7.7% rate reported on Friday.