I get the following question, or something like it all the time.  This time it came by e-mail.  I thought I’d post my response.  Here’s the question:

When looking at the economy, unemployment, and job growth…..what consideration is
given to the impact of the decline of jobs and/or elimination of jobs in the public sector
as state budgets collapse?  Oregon and California are facing tremendous cuts in their
public service budgets which, obviously will require lay-offs and a rise in unemployment rates.

So, if we look at the public sector as an industry that is shrinking like others, is not the
economic impact-primarily on middle income jobs- a factor.   I wonder also how we factor in the non-profit sector as an economic factor as well.  Again, with the decline in philanthropic giving non-profit organizations are laying off as well.  Further, the non-profit sector fills an important safety net need for the high risk citizens, a federal policy that came with the massive changes in the welfare system 20 years ago.   As non-profit work declines, it seems the high-risk populations become more so which further burdens the social fabric.

Here’s my answer:

Healthcare and government have been the two best performing economic sectors since the recession started.  Healthcare has gained jobs, while the government sector has seen only minimal job losses.  State job losses have been largely offset by increases in federal jobs.  Of course, job losses in any sector increases unemployment, and we try to anticipate government-sector jobs, just as we do any other sector.  Our recent forecasts of government jobs have tended to be slightly more negative than the reality, because state and local governments have been more tenacious in saving jobs than we thought possible, while the federal sector has grown faster than we thought possible.

While many talking heads worry about consumption, our fundamental problem is a lack of investment.  This is why the stimulus has disappointed.  Debt-financed consumption can’t be the solution to a problem resulting from debt-financed consumption, and long-term growth only comes from investment.

The real social problems being created right now are the ones resulting from the extraordinary long-term unemployment.  Unfortunately, these problems will not be rapidly dissipate as the economy recovers.

Data are not well-kept for the non-profit sector, because the data are collected based on what they do, not on organizational structure.  We assume that the non-profits are losing jobs, even while demand for their services is increasing.

Most government and  non-profit jobs are distributive rather than wealth creating.  What we desperately need now is wealth creation.