Government Layoffs Don't Hurt; They May Help

Some have suggested that cuts in state and local government jobs have negative effects on the economy. But that’s contradicted by the latest data on public and private sector employment and gross domestic product, by state.

The reason is clear. In general, higher state and local government employment results in a greater tax burden to finance public sector salaries and health and pension benefits. These higher taxes result in a decline in private sector employment and state G.D.P.

Between 2010 and 2011, 34 states, almost 70 percent, including California and New York, showed a decline in state and local employment but growth in state G.D.P. In six states, including New Jersey, state G.D.P. declined after cuts in government employment. State G.D.P. increased after government employment increased in nine states, and in one state, Wyoming, state and local government employment increased while state G.D.P. declined.

Private employment is a much stronger indicator of a state’s economic growth. Between 2010 and 2011, private employment and state G.D.P. both rose in 42 states, 84 percent of the country. In one state, Arkansas, state G.D.P. increased while private employment decreased. And in seven states (including New Jersey), state G.D.P. declined while private employment increased.

There are other variables affecting a state’s economic climate, and government layoffs are not the major one. But those layoffs do not drag down a state’s economic activity.

Results vary by year, but, particularly in an expanding economy, it’s quite likely that a state that cuts its budget by shrinking its public sector will see economic gains.

This piece originally appeared in The New York Times

This piece originally appeared in The New York Times