Budgets are pinched these days at all levels of government. And that could spell job losses in the public sector. The state's September jobs report, due out this Thursday, could show more contraction in Minnesota's government sector.
Public sector jobs in Minnesota weren't hit too badly in the recession. Between December 2007 and June 2009, the official period of recession, overall employment in the state took a dive of 4 percent. But government jobs dipped by less than one percent over that period.
"It's typically the case that demand for public services — government services — does increase during recession," said Steve Hine, the state's head labor market analyst. Hine said parts of government had to beef up in the down economy. For example, the Department of Employment and Economic Development, where he works, had to take on staff.
"As unemployment increased, it was necessary to hire many more people to man the phone banks to respond to questions that claimants for benefits had," Hine said.
But trendlines are looking different now. Positions funded by the federal stimulus package are going away. Hine notes that government has recently been one of the largest sources of job loss. Over the year through August, Minnesota's private sector plumped up by 2 percent or 47,000 jobs. But some 2,600 government jobs disappeared.
And economists expect public payrolls will contract further. A congressional super-committee is figuring out how to cut $1.5 trillion in federal spending over a decade. In Minnesota, the state economist predicts another budget deficit. State agencies are already cutting spending by 5 percent as part of a deal to close a budget gap for the current two-year budget cycle.
"That means fewer people are out there plowing our roads and inspecting our bridges than there were before," said Eliot Seide, executive director of AFSCME Council 5, which represents about 38,000 public sector workers in Minnesota — roughly half of them in state government.
Seide believes that the state's current budget plan requires shedding hundreds of state government workers.
Contract negotiations are underway. Seide said even if the union manages to achieve its goal of only laying off high-level managers or cutting jobs through attrition, those moves are still bad for the economy. Fewer workers will get paychecks at a time when public workers' spending power is already significantly down. Employees at various levels of government are absorbing multiple wage freezes.
"In the case of the state workforce, it was four wage freezes in the last eight years," Seide said. "Further diminishment of wages and further laying off of people will only drive Minnesota's economy into a double dip recession, and that's true nationally as well."
Though that prediction might be an overstatement, Seide isn't the only one who's worried. Ben Bernanke, chairman of the Board of Governors of the Federal Reserve System, has also suggested that cuts to state and local government budgets will create headwinds for the recovery.
However, economist Art Rolnick, former director of research at the Minneapolis Fed, said the harm or benefit of reducing government really depends on what cuts are made.
"We need certain public goods, certain infrastructure, and education is one of them. Minnesota has one of the strongest economies in this country because starting in the 50s we started to do a much better job educating our kids," Rolnick said. "And we invested significantly more per kid for educating our kids, and that really paid off well for this state.
Rolnick, a big advocate of early childhood education programs, said it would be a mistake to cut spending on programs that educate the workforce.
"On the other hand, if there are cuts in the number of people managing lottery or other government programs that I would argue are not the high return, then I would say it may actually be a good thing," Rolnick said.
And Rolnick says now is the right time to assess what, in fact, delivers a high return on taxpayer dollars.