The Next Wave of Layoffs: Public Employees

The May unemployment numbers set the economists into a tizzy. Nonfarm payroll employment fell by 345,000 and the unemployment rate rose to 9.4%. Since the drop was much less then the 500,000+ drop in the previous months, the figure was heralded as a turning point for the economy. Not so fast...

The millions of people unemployment have largely come from the private sector, not public employees. For example, the change in government employment for May was only -7,000. This came on the heels of the surprising 92,000 increase in April, which is attributed to hiring for the upcoming Census. Yet, the news is full of budget crises in states across the country. Why haven't we seen this impact in the employment numbers? The answer is that states operate on annual or biannual budgets. The typical fiscal year begins on July 1. Thus, the new budget realities for most states will be realized next month. Although many states have started the layoff process by informing those impacted, the actual unemployment repercussion will most likely be seen in July and August.

California's budget is still being negotiated, but the governor has warned of a loss of 20,000 state jobs (social workers, correctional officers, etc.) in closing their $24 billion budget gap. In California schools, over 40,000 teachers, bus drivers, janitors, secretaries, and administrators have already been notified they are likely to be laid off at the end of the year. California is not alone. Arizona handed out 5,500 pink slip warnings. Washington education groups estimate 5,000 job losses in its schools and 1,000 at the universities. These budget cuts come in spite of the billions allocated to education and states in the federal stimulus bill. The stimulus funds are temporary, so if the tax revenue problems continue, there will likely be more layoffs in future years.

Many city and county budgets are experiencing similar fiscal crises. Los Angeles is facing a $7 billion budget shortfall and will cut 1,200 workers. The New York City Mayor has announced nearly 4,000 city worker layoffs. Detroit plans to cut 900 employees in their school district. Hundreds of teachers and other public employees will be cut in places like Grand Rapids, Charlotte, New York City, Orlando, and Wisconsin to name but a few. Your local libraries, city services, museums, prisons, state parks, and social welfare systems will all be impacted.

Will the private sector finally be hiring again and offset these public employee job losses? It is possible, but unlikely. This new round of job losses could set back any progress made in the real estate markets and consumer spending. I don't think we are out of the woods yet.