With the sequester less than a week away and a deal to avert it nowhere in sight, it seems very likely we’ll soon learn what across-the-board federal government spending cuts mean for local communities and the economy as a whole.
While some impacts appear obvious-states with a high concentration of military bases and defense contractors, for example, will be affected more than others-no one really knows what the economic effects will be.
Here’s a prediction: The immediate impact will not be as dire as many fear. But over time, sequestration will cause significant economic drag.
It’s easy to predict this because something very similar has already happened. Since the beginning of the Great Recession, public-sector payrolls have been reduced significantly.
A recent report by the Rockefeller Institute of Government at SUNY Albany documents what has occurred with state and local governments nationwide. In 2012, states and localities cut nearly 489,000 jobs.
"While private-sector employment has been slowly recovering over the last three years, state and local governments have been shedding jobs almost continuously since 2008," the report states.
It also notes that "although state and local government employment has typically been more stable than private-sector employment during and after economic downturns, the Great Recession brought unprecedented reductions in state and local government jobs."
This occurred even though the American Recovery and Reinvestment Act provided considerable assistance to states and local communities-and the stimulus now is largely exhausted.
By some estimates, the unemployment rate would be a full percentage point lower if public-sector payrolls had remained at their 2008 levels. In fact, the impact might be even bigger, because private firms that are government contractors have been hurt too.
To be sure, a strong argument can be made for further reductions in government hiring and spending. But as noted here before, public-sector downsizing is a sizable factor in the slow job-market recovery. The sequester would double down on that trend.
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