Cities Should Think Twice Before Hiring Again

As Congress debates the expanding size of the federal government, the next generation of mayors soon to take office in New York, Boston and in other U.S. cities will inherit public sectors much smaller than what they were five years ago. The recession cut more than 500,000 local jobs, according to the Bureau of Labor Statistics. And unlike private-sector employment, which has been growing since early 2010, government hiring remains weak.

Mayors should make a virtue out of necessity and postpone adding more workers for the foreseeable future. Although more local hiring would push down metropolitan unemployment rates, the mayors’ greater responsibility is to stabilize budgets, which remain fragile in almost all big U.S cities.

Based on figures from the most recent jobs report, had local governments gained back all the jobs they lost since 2008, the national unemployment rate would be less than 7 percent, instead of 7.3 percent.

As one measure of the severity of the recession, local governments only stopped losing jobs late last year, after four years of almost uninterrupted decline and more than three years since the recession officially ended. In Los Angeles, for example, the city government has shed 5,000 employees in the last five years -- 14 percent of the public-sector workforce.

Of course, "recovery" in the public sector is based on local governments’ pre-recession workforce. Should cities be employing more employees than they are now? What’s the "right size" of city government? We can’t look to the past for guidance: In the dot-com and early 1990s recessions, government workforces actually increased.

Higher Spending

Spending isn’t down. According to the most recent data from the Census Bureau, local governments spent $2 trillion in 2011. Adjusted for inflation, that’s $150 billion more than in 2005, when the local workforce was the same size as it is now. Local spending has continued to increase since 2011.

Spending and hiring have been decoupled because of a spike in costs for employee benefits for both current employees and retirees. Sometimes described as "fixed" or "uncontrollable," health-care and pension costs have, in most recent years, risen at a faster rate than revenue growth, restricting cities’ ability to add more workers, and directly forcing cuts in some cities.

Remarking on Chicago’s recent decision to dismiss more than 2,000 teachers and school support staff, Mayor Rahm Emanuel said: "The pension crisis is no longer around the corner. It has arrived at our schools."

Thus, in the near term, mayors will have the "right size" question answered for them. This gives them some breathing space to assess their operations, head count and needs.

What, if anything, has a loss of a half-million jobs meant for municipal services? Recessions teach many employers that they can get by with less. New York’s crime rate continues to plummet even though the city’s police department has lost more than 2,000 uniformed employees since Mayor Michael Bloomberg (who is the founder and majority owner of Bloomberg News parent Bloomberg LP) took office in 2002. Meanwhile, the city’s annual pension costs have grown by 400 percent, or $6 billion, in 2013 dollars.

Overstaffing has long afflicted fire departments in Boston and many other cities. Since the early 1980s, firefighter cohorts have continued to grow with budget and population increases, but the number of actual structure fires has declined by more than 40 percent.

Cities will probably face the strongest pressure to hire back teachers, who compose the largest employee cohort at any level of American government by far.

Hiring Teachers

But mayors and school officials should insist that the need for more teachers be evaluated in the context of student and school performance and overall compensation packages, instead of making the assumption that we need to hire more teachers as soon as possible simply because we used to employ more of them.

Keeping public-sector payrolls lean is the easiest way to control personnel spending, because it constitutes the largest area of concern in any city budget, in terms of both its magnitude and the difficulty in managing rates of growth.

Most big city mayors must settle on salaries through collective bargaining. Unions also exert considerable influence over health-care costs, as do medical inflation trends far beyond officials’ power to control. Pension costs are determined by stock market returns, benefit formulas and strong legal protections that grant current leaders almost no latitude to change benefits for existing workers or retirees.

The point isn’t more austerity, and certainly not more cuts, but simply less presumption about what a likely low-growth future holds for city budgets. Mayors are proud, but, in service to their ambition and legacy, about which it’s never too early to think, they should be cautious about hiring.

This piece originally appeared in Bloomberg

This piece originally appeared in Bloomberg