The Public Employment Disaster

The most important data point in this morning’s employment release—both for economics and politics—is the loss of 48,000 state and local government jobs. That almost wipes out the 71,000 increase in private employment. Because of the layoff of Census temporary workers, the headline payroll number fell by 131,000. I’ve been warning since February that the most vulnerable sector of employment is municipal, for a number of reasons.

1) State and particularly local government employment road the real estate bubble and collapse with it.

2) The federal government can and will raise taxes. Localities that rely on real estate taxes may not be able to even if they want to, and states cannot raise taxes without driving out prospective residents and businesses. People might move from California to Nevada to ecape higher taxes; fewer people will move from Chicago to, say, Hong Kong.

3) State governments cannot borrow to fund deficits (they can arrange certain amount of chicanery among their accounts, but there are natural limits to that).

4) Most of the stimulus package Obama forced through last year subsidized deficit-ridden state and local governments and delayed layoffs. Congress will not do that a second time (and surely will not do so after the November massacre of Democrats).

This has deepgoing political effects. The patronage machines of state parties will be shredded. The great public employees’ unions, which replaced the industrial unions in membership and political influence, will decline.

Some cities will become nearly unliveable. As I wrote in an On the Square analysis two weeks ago, unemployment is concentrated among the less educated, among men, and among African-Americans. Long-term joblessness among minority men, combined with a sharp reduction in local employment and social services, is an explosive combination.