Is Government Finally Hiring?

As the federal government has provided stimulus through extended unemployment benefits, food stamps, and heightened spending in the post-bust years, state and local governments have acted as a counterweight. Revenues fell off a cliff in 2009, and since state and local governments are prohibited from running deficits, they responded by cutting spending and raising taxes. The reduced spending resulted in sharply lower government employment.

According to the Bureau of Labor Statistics, in every month since February 2010, the private sector has added positions. That’s 34 straight months of private-sector job creation, in which companies have added a total of 5.323 million jobs. That’s pretty good, but not nearly enough to recoup all the jobs lost during 2008 and 2009. By contrast, government employment has fallen in virtually every month since May 2010. Between May 2010 and December 2012, the government sector has reduced employment by 1.072 million, or about 4.7 percent. Now, the employment figures in early 2010 were inflated in part by temporary federal census employment. But the tale of decline is clear and obvious. Since the beginning of 2009, local governments have cut 529,000 positions and state governments have cut 126,000 posts.

Amid all the cries of socialism, then, the shape of the economy has subtly shifted. Government spending on defense, entitlements, and social insurance may be up. But the government’s role as a direct employer has declined. In February 2010, 82.6 percent of all jobs in the U.S. were private-sector positions. In December 2012 that proportion had moved up to 83.6 percent.

To be sure, a large chunk of government job cuts can be chalked up to the type of needed efficiency measures that private-sector companies undertook in 2008 and 2009 as they fought a battle for survival. But it’s worth remembering that in prior recoveries—under George W. Bush and Ronald Reagan, for example—government employment generally expanded. It’s not like we suddenly woke up in 2009 and realized we had several hundred thousand redundant teachers, policemen, firefighters, bus drivers, and civil engineers.

But there are signs that the government job carnage may be coming to an end. As the economy has continued to grow—albeit too slow for anyone’s liking—and as the housing market has continued to recover, the revenue picture for state and local governments has improved. Public coffers have been receiving incrementally more payroll taxes, property taxes, corporate income taxes, and sales taxes. According to the Rockefeller Institute for State Government, state revenues in the third quarter of 2012 rose 2.1 percent from the year before. “Tax collections have now risen for 11 straight quarters, beginning with the first quarter of 2010.”

Those are modest gains, and in many states the increased funds are simply going to plug gaping gaps that continue to pop up in budgets. And even if the current-year revenue picture improves, states like Illinois are grappling with massively underfunded pension liabilities. So it’s not as if a bump in revenues will lead to the rapid expansion of employment.

Still, some analysts believe that the trend of rising revenues and continuing growth will put state and local government in a position to recall some of those teachers and other workers fired in the past three years. Marissa di Natale, an economist at Moody’s, told Fortune that she expects state governments to add 70,000 positions in 2013. USA Today reported that Moody’s says state and local governments will add 220,000 jobs in 2013.

Overall, that’s still a drop in the bucket. We need millions of new jobs to reach full employment. And, as noted, the government sector has cut about 1 million positions. But as the American economic ship lurches forward into choppy seas in 2013, there are hints that what used to be a stiff headwind may be turning into a modest tailwind.