Government Employment A Drag On Recovery | As cities and towns cut staff, local businesses feel the pinch
Over the past few months, the news from the state job market has been pretty good. More people are finding jobs in most sectors of the economy, particularly in manufacturing, health care and information/IT.
But there’s one glaring exception: government. Between December and April, seasonally adjusted figures from the Executive Office of Labor and Workforce Development show that government employment in Massachusetts fell by 5,600, even as the private sector added more than 34,000 jobs.
And the contrast could become more significant over the next few months. While economists predict continuing slow growth in most sectors, state and municipal officials are stewing over the possibility of additional layoffs.
Local Lag
Robert Nakosteen, an economics professor at the University of Massachusetts in Amherst, said government hiring tends to lag behind the private sector partly because of administrative issues.
But he said another factor is that governments get their money from taxes on sales, real estate development and employment — all areas that haven’t been improving as fast as other areas of the economy.
“When the economy starts coming back, government revenues don’t keep pace,” Nakosteen said. “It takes longer for them.”
Senate President Therese Murray recently said that fiscal year 2012 will be the “worst year” for the state budget since the start of the recession, thanks in part to the absence of federal stimulus funding that helped cushion the blow of lower local revenues in recent years.
A bad year for the state is a bad year for municipalities too, since cities and school systems are partly dependent on state funding.
Local governments will also feel the loss of the federal stimulus funding, which has all but dried up. Those stimulus dollars helped many cities and towns from making the tough decisions to lay off teachers, police and firefighters in recent years.
Worcester’s Plight
If any government entity knows something about the effects of public-sector job loss, it’s the city of Worcester. The city has seen its employee count fall from about 1,900 10 years ago to about 1,450 today, according to City Manager Michael O’Brien.
O’Brien said there have been significant cuts to services as a result — the loss of much of the city’s proactive community policing, for example.
But he said there’s also an effect on the local economy.
“It’s people that have homes here in the city and the region,” he said. “It’s folks that are buying groceries [and] visiting local cultural institutions.”
Steve Gallagher, owner of CadNick’s Sandwich Shop, has seen that effect for himself.
“It’s been pretty dramatic,” he said.
From the door the Front Street lunch spot in downtown Worcester, Gallagher could lob a stone onto City Hall’s front lawn, and he said that over the years he’s seen a drop-off in both customer volume and the money his regulars have to spend.
“You used to see them maybe three times a week, and now they’re only one time a week,” he said.
Even if a customer-facing business isn’t sitting in the lap of a major city building, government employees probably represent a significant part of its customer base.
That’s because in Massachusetts, 13 percent of the jobs are in the public sector.
In fact, governments employ more people than the manufacturing, retail trade or leisure and hospitality industries.
And, while the phrase “government spending” may not bring visions of superb efficiency to many people’s minds, Nakosteen noted that governments are very effective at getting money into the economy.
Big businesses are still skittish about economic recovery at the moment and they’re “sitting on loads of cash” because extra hiring sounds risky, he said.
In contrast, governments tend to spend their money, and they spend most of it on salaries and benefits that end up in the local economy.
In Worcester, O’Brien said, 85 percent of the city budget goes toward personnel expenses.
Of course, even if reducing spending means reducing personnel expenses, that can come in different forms — like either laying off workers or shifting health care costs toward employees.
Gallagher said he’s paying attention as the city negotiates with its employees’ unions over that very issue, because it means something to his bottom line.
“As a business owner, you’re always watching what’s going on,” he said.
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