Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

State, city job cuts taint recovery

By Jennifer Liberto, senior writer


NEW YORK (CNNMoney.com) -- State and municipal worker layoffs are playing a bigger role in dragging down the economy, economists say, pointing to July national unemployment figures released Friday.

Public sector job losses, not counting government losses from temporary positions collecting federal census data, rose to 48,000 in July - the biggest loss in the sector in a year.

With so many states and cities facing budget crunches and running short on stimulus dollars to plug the holes, a new round of layoffs began to kick in July, when many governments begin their fiscal year.

"All of us knew that the municipal government funding is a ticking time bomb," said economist Robert Brusca of FAO Economics, who noted the impact of state worker losses on the national economy. "There's more pressure on municipalities rather than less. Putting a Band-Aid on the municipal economy makes sense."

The "Band-Aid" is proposed $26 billion legislation in Congress intended to avert more teacher, police officer and firefighter layoffs. The Senate approved the package on Wednesday and the House is returning from its summer break to approve the measure next week.

While the package will help, economists agree it's not near enough to stymie future layoffs in the public sector.

The grand total in budgetary gaps at state governments nationwide this year could reach $140 billion, according to research by Nicholas Johnson, director of the State Fiscal Project at the Center on Budget and Policy Priorities. The center projects that, without any help, there will be a loss of nearly 900,000 jobs, including spillover losses in the private sector.

"It's pretty clear even with the $26 billion, you're still talking about public sector layoffs, particularly with teachers," said Ernie Goss, a labor economist at Creighton University in Omaha, Neb., who conducts three surveys each month of 15 states that consistently show economic weakness. "The recovery has definitely weakened."

Even Federal Reserve Board Chairman Ben Bernanke noted the impact state and local program cutbacks have had on the economy, suggesting in a speech earlier this week that "state finances will remain under pressure for some time."

With 49 of 50 states required by law to balance their budgets, states have no choice but to cut more spending and raise taxes, said Heidi Shierholz, a labor economist at the Economic Policy Institute.

"This is only beginning of the losses," she said. To top of page

Index Last Change % Change
Dow 16,374.76 23.38 0.14%
Nasdaq 4,733.50 -16.48 -0.35%
S&P 500 1,951.13 2.27 0.12%
Treasuries 2.17 -0.02 -1.14%
Data as of 5:47pm ET
Company Price Change % Change
Bank of America Corp... 15.94 0.09 0.57%
Apple Inc 110.37 -1.97 -1.75%
Freeport-McMoRan Inc... 10.13 0.23 2.32%
Intel Corp 29.08 0.48 1.68%
Frontier Communicati... 5.52 0.31 5.95%
Data as of 4:01pm ET
Sponsors

Sections

Americans are transforming how they eat -- paying more attention to the origins of their food and how it's made. And Kimbal Musk is at the forefront of a movement that is accelerating the rate of change. More

The Labor Department releases its August jobs report on Friday, and it will have big implications for the Federal Reserve. More

The BauBax travel jacket, with 15 built-in features, needed $20,000 on Kickstarter, but got $9 million. More

Pimco's famous fund once managed by star manager Bill Gross has less than $100 billion in management for the first time since 2007. More