State Jobs Shrink as Austerity Calls Collide With Demands for Employment

Calls by U.S. voters for smaller deficits are clashing with their demands for more jobs.

As governments at all levels face pressure to cut spending, thousands of public-sector workers are joining the ranks of the 13.9 million unemployed. In July, 37,000 government jobs were eliminated, marking the ninth straight month of reduction, a Labor Department report showed yesterday.

Cuts in spending and jobs by state and local governments are among the impediments to economic growth, along with the housing slump and tight credit, Federal Reserve Chairman Ben S. Bernanke has said. The fiscal drag may get worse as the federal government starts reducing deficits after the Aug. 2 agreement to raise the debt limit, said economist Mark Vitner.

“What we’ve seen with the debt-ceiling deal is just the pre-game,” said Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We have so many more cuts to make.”

A Bloomberg National Poll, conducted June 17-20, found voters choosing jobs over the deficit or federal spending as their top concern by 42 percent to 30 percent.

Yet 74 percent of Americans support an amendment to balance the federal budget, according to a CNN poll conducted July 18-20 by ORC International. Every state except Vermont is already obligated to balance its budget, which explains the early resort to job reductions.

State governments made the deepest reductions in July, cutting 23,000 positions, most of them stemming from a partial government shutdown in Minnesota as legislators sought to close a $5 billion budget deficit. The federal government expanded payrolls for the first time in four months, adding 2,000 workers.

Jobless Rate

The loss of 218,000 government jobs in the first seven months of this year roughly equals the number of private positions created in June and July. Vitner said public-sector job cuts have added about half a percentage point to the unemployment rate, which was 9.1 percent in July.

Companies added 154,000 workers to payrolls last month, yesterday’s Labor Department report showed. When public-sector job losses are included, payrolls expanded by 117,000.

Local governments are cutting back as states reduce aid and slumping property values reduce tax revenue.

In Rhode Island, the city of Central Falls sought bankruptcy protection on Aug. 1 because it doesn’t have enough money to pay for pensions.

City workers in nearby Providence also are feeling the squeeze. With the city facing a $110 million budget deficit this year, teachers agreed to forgo raises for a year, working longer days for no extra pay and letting 80 jobs go unfilled. Firefighters, threatened with 75 job reductions, also gave up raises.

No Pay Raise

“It’s taking money directly out of people’s pockets, but there were no good or easy solutions left,” said Paul Doughty, president of the firefighters’ union. “We’re looking at five years without a pay raise,” he said.

In Minnesota, Michael Lindholt, a maintenance worker at the state’s Department of Transportation, was out of work for three weeks from his $21 a hour job when the state was forced to shut down because of budget shortfalls.

“When you’re out of three weeks of work it hurts,” he said. “Bills are not getting paid. You prioritize. You’ve got to pay rent. You’ve got to put food on the table.”

Higher Gear

Wells Fargo predicts 20,000 to 30,000 additional government job losses a month through the middle of next year, most at the state and local levels, Vitner said. Then, the budget tightening at the federal level will swing into higher gear, he said, as a result of the measure to raise the debt limit signed by President Barack Obama this week.

Federal spending will decline by $42 billion in the fiscal year starting Oct. 1, 2012, twice the amount during the previous 12 months, according to the Congressional Budget Office. The bill calls for deficit reductions totaling $2.1 trillion over a decade.

Including indirect jobs lost in the rest of the economy, the toll could approach 1 million jobs, according to Dean Baker, an economist with the Center for Economic and Policy Research in Washington, D.C.

John Herrmann, senior fixed-income strategist with State Street Global Markets in Boston, said cuts by state and local governments would help push the unemployment rate to 9.4 percent by year’s end.

Too Slowly

“We are seeing ongoing cuts in the public sector,” he said before the Labor Department report. “And the private sector is growing jobs too slowly to absorb those cuts.”

On Capitol Hill, some lawmakers say that government jobs are too plentiful. Representative Jason Chaffetz, a Republican from Utah, has proposed legislation authorizing the government to replace only one of every three workers who leave or retire.

Senator Richard Shelby, a Republican from Alabama, said at a July 21 hearing that the financial regulation law known as the Dodd-Frank Act will create unneeded jobs for bureaucrats.

“Dodd-Frank also will add over 4,000 new government jobs, many of them very well paid,” Shelby said.

To contact the reporters on this story: David Lynch at Dlynch27@bloomberg.net; Jeannine Aversa in Washington at javersa@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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