How Public Sector Layoffs Killed 750,000 Private Sector Jobs

As ThinkProgress has noted time and again, the unemployment rate would be up to a percentage point lower if all levels of government hadn’t engaged in severe austerity, shedding hundreds of thousands of jobs. The last three years have been the worst for public employment on record.

As a recent study by the Economic Policy Institute showed, these job cuts ripple through the economy, also harming private sector job creation. In fact, EPI estimates that public sector job cuts have likely cost the private sector 750,000 jobs:

The economic “multiplier” of state and local spending (not including transfer payments) is large — around 1.24. This means that for every dollar cut in salary and supplies of public-sector workers, another $0.24 is lost in purchasing power throughout the rest of the economy. Teachers and firefighters stop going to restaurants and buying cars if they’re laid off, which reduces demand for waitstaff and autoworkers and so on. Add these two influences together (supplier jobs and jobs supported by this multiplier impact) and roughly 0.67 private sector jobs are lost for every public sector job cut. This means that the public sector being down 1.1 million jobs has likely cost the private sector 751,000 jobs.

For comparison’s sake, here is the level of public sector employment during the three most recent recessions:


As former White House economist Jared Bernstein wrote, “It’s obviously nuts to maintain, as some do, that the government doesn’t create jobs. It creates millions of them, and we very much need them if we’re going to educate kids, drink water, put out fires, have public safety, etc. But public sector jobs also create private sector jobs upstream and downstream. It’s all connected, man.” Republicans, meanwhile, continue to cheer on public sector layoffs, which disproportionately hurt women and minorities in the workforce.