1. Governance
September 23, 2020updated 24 Sep 2020 9:17pm

The economic risks of slashing local government jobs

As cities and states across the US face stark budget decisions, recent history in Wisconsin provides an object lesson in what can happen when a public-sector workforce shrinks.

By Jake Blumgart

A protester waves the Wisconsin state flag in a 2011 file photo.

In this 2011 photo, a protester waves the Wisconsin state flag in Madison. Thousands of demonstrators took over the Wisconsin State Capitol that year after Republican senators voted to curb collective-bargaining rights for public workers. (Photo by Justin Sullivan/Getty Images)

Wisconsin’s public sector cannot catch a break.

The Great Recession racked the state’s finances, and then Governor Scott Walker spent eight years ensuring that government institutions and their workers bore the brunt of the painful fallout. Walker, who left office in 2019, focused his efforts on austerity measures and breaking government unions. The result was slow job growth, lower wage growth and a shrunken public sector.

Now Covid-19 is looming over the next budget season. Some municipalities and agencies in the state have been able to keep job cuts and furloughs to a minimum in the hope that federal aid would eventually come through. But that’s looking less and less likely. By law, American states cannot run deficits, and in the absence of help from Washington, DC, they will be forced to either cut spending or hike taxes. A 2012 analysis from the Center on Budget and Policy Priorities found that the latter option was far more popular: fee and tax increases were only responsible for 15% of the measures taken to close budget gaps. Spending cuts accounted for 45%.

That could be a bigger problem for the US’s recovery than the nation’s private-enterprise-valorising political culture would like to admit. Public-sector workers at the state and local levels play a big part in regional economies, and it will be much harder to dig the economy out of its pandemic-era funk if they are added to the unemployment rolls.

For Jon Shelton, a professor in the University of Wisconsin system, the current moment is suffused with dread. It’s a feeling government workers in Wisconsin have had to get used to over the past decade.

“I don’t think there’s any sector of public employment right now that’s not worried about what’s going to happen in the next few years,” says Shelton, who is vice-president of the American Federation of Teachers-Wisconsin’s council on higher education. Wisconsin’s higher-education system had to return over $40m during Covid-related budget cuts this May, and staffers worry more layoffs are ahead. “The anxiety that we’re facing is connected to this longer history of austerity politics,” he says. “There’s a lot of fear.”

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The University of Wisconsin is looking at this bleak future after a decade of deep cuts under the Walker administration. In addition to a couple hundred million axed from the system at the beginning of the Great Recession, during the recovery, Walker cut away a further $362m. The loss was made up for in part by lowered pay and benefits. Tenure was dramatically weakened, and top professors were poached by competitor schools. For the first time in half a century, the University of Wisconsin-Madison fell from the rankings of the top five research universities in the US.

While the University of Wisconsin got hit hardest by Walker’s cuts, the consequences of his austerity measures are visible throughout the state’s public sector. Even at the beginning of this year, before the pandemic, combined state and local government employment numbers were lower than they had been in 2013 in terms of raw numbers and as a proportion of total employment.

Now it is uncertain if Wisconsin’s public sector will even be able to return to what it was eight months ago. As of July, overall employment growth in the state had picked up again, but public-sector jobs in the state are recovering at a slower rate than the private sector, and there’s still a lot of ground to make up. According to the Bureau of Labor Statistics, Wisconsin had 22,500 fewer local government jobs and 20,100 fewer state government jobs in July than it did in February of this year.

This reflects a larger trend in the US’s state and local public sectors, which are the levels of government that most directly touch the day-to-day life of the citizenry. Many of the people who provide essential services such as education, public safety, transportation and sanitation have been working in a fiscally constrained environment since the Great Recession.

As a proportion of national employment, jobs in these sectors fell during the aftermath of the last financial crisis and continued falling for years after the private sector began to rebound. Before the pandemic, non-federal public-sector employment represented 12.8% of non-farm employment, almost a full percentage point below the 2013 level. As of July, the proportion had fallen to 12.2%.

“It was a double-barrel punch,” says John Schmitt, vice-president of the Economic Policy Institute, a left-leaning think tank in Washington, DC. First the Great Recession cut revenues and employment in the public sector, then conservative forces at the state and judicial levels launched a series of assaults against already-weakened public-sector unions. The pandemic-induced downturn comes on top of all that. “It’s going to be very, very tough.”

The challenges that face government workers in Wisconsin are illustrative of the dual threat confronting the larger public sector in the Covid era as well as the implications their fate will have for the larger economy. Policymakers are confronted with daunting perils. But the existential threat of the pandemic is being addressed in the context of a winner-take-all political system, where one party is openly scornful of the public sector and often views its employees as enemies.

The result of this ideology in Wisconsin, after the Great Recession, was an austerity programme wielded as a cudgel against the Republican Party’s perceived foes.

The economic challenges to the state budget in the wake of the 2008 crash did not merely require a minor course correction. Although Barack Obama’s administration offered significant aid to state and local governments in 2009, by 2011, the subsidies were wearing off just as Walker entered the governor’s mansion. The state had a budget shortfall of $3bn.

With Republicans in charge of all the state’s power centres, it was clear who would be made to sacrifice.

“We can no longer have a society where the public-sector employees are the ‘haves’ and the people who foot the bill, the taxpayers, are the ‘have-nots,’” Walker said during his 2010 campaign.

With the decline of manufacturing and the evisceration of the private-sector union movement, public-sector jobs can be among the best blue-collar jobs available, especially in lower-income rural and urban communities. While these jobs help stabilise local economies and reallocate resources to every corner of a state, this dynamic can also stoke what University of Wisconsin professor Katherine Cramer calls “the politics of resentment”.

In her research, Cramer attended dozens of neighbourhood meetings in the rural areas and small towns of Wisconsin and found that many residents “perceived that public employees were the wealthy members of their community… and the money to pay for [their wages and benefits] was coming from taxpayers like themselves.”

These disparities remain despite Walker’s anti-government crusade, in large part because many working-class private-sector jobs offer close to minimum wage and because in some parts of the state, teachers may be the only highly educated workers in the area. In Wisconsin, 75% of regions have average public-sector wages that are higher than average private-sector wages. “Regions” in this case are Public Use Microdata Areas (PUMAs), or geographic areas within a state that have roughly 100,000 residents. They are redefined by the US Census Bureau at every decennial census and are used to show data across equal-population areas.

Large swaths of many American states have average public-sector incomes that are higher than private incomes. In Ohio and Iowa, 73% of regions have higher average public-sector incomes. In Florida, it’s 68%, and in Georgia, 64%.

In Wisconsin’s urban areas, 64% of PUMAs have public-sector incomes that are higher than their non-government counterparts. Wealthier suburbs were the principal parts of the state that saw those in the private sector enjoying higher average pay. But 100% of the state’s non-urban regions have average, non-federal public incomes that are higher than average private incomes.

Walker showed that a determined opponent could play on these dynamics and that voters could be motivated to drag down their government-employed neighbours rather than trying to boost their own prospects or supporting redistributive policies. This was aided by the US’s increasingly polarised politics, in which cities and density are strongly associated with the Democratic Party: Cramer found that even in rural areas, public employees were discussed “as if they were controlled by urban concerns”.

Walker’s base of support was strongest in wealthier suburban counties, but he successfully stoked this politics of resentment throughout the rural, exurban and small-town areas, too. He used the budget crisis caused by the winding-down of the Obama administration’s stimulus efforts to push through a bill, Act 10, that drastically curtailed collective bargaining for public-sector workers and required them to put an additional 10% of their paychecks into their health and retirement benefits. The drop in take-home pay was the equivalent of over $1bn annually.

This dampening of wage growth is visible in the census data. In Wisconsin, PUMAs where non-federal public incomes were higher than private incomes, public employees made about $767 less in 2018 than they did in 2007. By contrast, private incomes in these areas rose about $504 over the same time frame.

Shelton joined the University of Wisconsin in 2013, after Walker’s first austerity budget. The mood among his colleagues was already subdued. A lot of older faculty and staff began retiring in the wake of Act 10, a trend that accelerated after Walker’s second austerity budget in 2015 hacked a further $250m from the system (an effort the governor referred to as “Act 10 for the UW system”).

“It really crushed people’s morale,” says Shelton. “To me it felt like, why did I uproot my family to come here? We made the decision to move to Wisconsin because of the reputation of the UW system. It felt like no matter how hard I work, no matter how good of a teacher I am, these budget cuts could threaten my future. Even if I’m lucky enough to keep my job, will we have adequate resources for our students?”

The aftermath of Walker’s austerity hampered Wisconsin’s emergence from the Great Recession. A 2018 study from the Economic Policy Institute compared economic outcomes in Minnesota and Wisconsin, neighbouring states with similar populations, demographics and histories. But where Walker turned to austerity and union-busting, his counterpart in Minnesota raised taxes on the wealthy and boosted social spending. The EPI’s research found that by most measures, Wisconsin did markedly worse than its neighbour, with lower growth rates in income, employment and wages. In 2017, Minnesota boasted more jobs than its neighbour, even though Wisconsin has almost 100,000 more residents.

Teachers left poorer districts for opportunities in other sectors or regions as the wages and benefits in public schools stagnated. Although public-school spending increased, it did so at a rate far below the national average, and Wisconsin’s spending per pupil fell dramatically in comparison with other states. A similar story unfolded on college campuses. A 2019 report from the State Higher Education Executive Officers Association found that state funding for higher education in Wisconsin saw the fourth-largest decline in the nation between 2013 and 2018, outstripped only by Mississippi, Oklahoma and West Virginia.

The state’s unionisation rate plummeted from 14.2% in 2010 to 8.1% in 2019, a decline hastened by an anti-union “right to work” law that passed a few years after Act 10. The effort was explicitly seen as a way to undermine a pillar of the Democratic Party coalition, weakening the labour movement’s get-out-the-vote and fundraising efforts.

Walker’s cuts didn’t result merely in a decline in services but in the hollowing-out of the rare economic sector that still provides relatively stable blue-collar employment and security to Americans in fields like sanitation, transportation and public safety. Although white-collar workers like Shelton suffer as a result, their working-class counterparts in the public sector are the ones that experts believe could be truly immiserated.

“Historically, many public-sector jobs were terrible,” says William Jones, a historian who studies government employment at the University of Minnesota. In fields like sanitation, building services and lower-end healthcare jobs, the pay was bad and working conditions were worse. Many government employees were hired as mere day labourers. “That only changed when those jobs were unionised,” Jones says. “If we see the unionisation of the public sector fade, we’re going to go back to a situation where those jobs are poorly paid.”

Cuts to the public sector have their winners and losers at the best of times. But during the Covid era, or any recession, they hold a special danger. State and local public-sector consumption and investment are consistently responsible for about 12% of GDP and, even after the initial round of Covid job losses, are responsible for over 12% of national employment. The sheer size of the sector means that austerity at these lower levels of government can swamp federal stimulus efforts. Many experts now believe that’s exactly what occurred after the Obama administration’s aid packages to states and localities wound down in 2011, long before the pain ended for these sectors.

“If you don’t replace income in a timely manner, people cut back on consumption and then you set off dangerous feedback loops,” says Skanda Amarnath, director of research and analysis at Employ America. Public employees, like most working and middle-class people, are going to spend their money in their local economy. If their jobs and incomes are cut, local restaurants, groceries and landlords will pay the price. Then they will pay fewer taxes, leading to still more cuts.

But all that can be avoided, Amarnath says. “State and local government accounts for a significant chunk of US employment, and we don’t want to see those jobs slashed purely because they ran out of money.”

Unlike jobs in, say, hospitality, most of the roles played by public employees are more relevant during a pandemic. The only reason for job cuts is because states will have lost revenue for reasons far beyond their control. That’s why Amarnath and most other economists believe that the federal government, which can easily borrow funds at low interest rates without stoking inflation, should be sending massive amounts of money to states and localities right now.

Recovery would be hastened by the impressive employment multiplier effects of spending on services like education, healthcare and infrastructure. These industries tend to be labour intensive and unexportable.  Spending on education and healthcare provide particularly strong job returns because they pay for services that don’t require much capital spending on heavy equipment (in comparison with infrastructure or military spending).

Research from Heidi Garrett-Peltier of the University of Massachusetts, Amherst, found that every $1m spent on education results in an average of 15.2 jobs, while healthcare spending results in 14.3 jobs (infrastructure gets only 9.8 jobs per million spent). A 2015 study from the Congressional Budget Office found that the stimulative effects of aid to state and local governments outstrip those of tax cuts for corporations or the wealthy. (Although that study found that infrastructure spending had a greater effect than other government services.)

But instead of spending to stimulate recovery, state and local governments are facing an unnerving future. The $2.2trn CARES Act, passed in the midst of early pandemic uncertainty, included a mere $150bn for state, local and tribal governments. (This aid could only be used to address Covid-related expenses.) Although state and local government revenues were briefly buoyed by a dramatic resurgence in consumption, as the income support from the CARES Act faded, the rebound in consumer spending began to slow in July.

While Democratic stimulus bills offered trillions in relief for local and state governments, opposition in the Republican Party began building when the pandemic was barely past its spring peak. Key figures like Mitch McConnell and Donald Trump argued that states had been fiscally irresponsible and should not be aided, when in fact most had built up substantial rainy-day funds.

Walker took to the pages of the New York Times to argue that states should balance their books through austerity measures and union-busting.

“While unprecedented numbers of people are seeking unemployment compensation, many state government employees are still receiving paychecks as they sit idle at home,” Walker wrote. “To make matters worse, many state leaders now demand a bailout by the federal government – the American taxpayer. This should not happen… Workers and small businesses need help more than government bureaucracies.”

The Republican Party seems to have heeded Walker’s advice. Negotiations over a second stimulus have stalled in the face of conservative intransigence. That means the needed aid, if it comes at all, may not arrive until 2021, when many state and local governments begin planning their budgets for the coming year. Revenues of almost all kinds are expected to suffer, from income and property taxes to parking revenue and commercial-services fees.

“The situation facing state and local governments is a disaster,” the Economic Policy Institute’s Schmitt says. “It’s almost a certainty that the full impact hasn’t hit yet because the downside on the revenue has not fully passed through the system.”

The pain dealt to public budgets unfolds over years, lingering long past the early months of a disaster, when national policymakers’ minds are focused. While sales taxes plummeted in April and May, the gaps in revenue from income and property taxes will not be seen until next year in most cases. In 2021, Wisconsin lawmakers must set a budget for the next two years.  Without federal aid, it is expected to be bleak process.

“Even if the economy picks up a bit between now and the end of the year, they’re not going to make up the revenue they missed,” says Schmitt.

Advocacy groups for the public sector have been sounding the alarm bells for months. The National Association of Counties reported that as of August, the local-government sector is still 909,000 jobs short of its February total, while the National League of Cities reports that a third of city workers are expected to be furloughed or laid off in the coming months. Many of the imperiled jobs are in education, which is the largest sector of local government employment.

Back in Green Bay, Shelton says the tension is unbearable. Teachers in K-12 and higher education are struggling with unprecedented working conditions, childcare issues of their own and the memory of how badly they were treated the last time their state was in dire fiscal straits. In late September, Democratic Governor Tony Evers announced he would be seeking a further $301.5m in lapses this year, where agencies and the University of Wisconsin must send money that had been allocated to them back into the general fund.

“Things are really tough right now for pretty much anyone in public education,” says Shelton. “Public-school teachers and university faculty are already stressed about all of the challenges they’re having to navigate. Then there’s long-term economic anxiety, because people that spend any amount of time thinking about this are worried about a major budget crisis. Add all that up and you have a workforce that’s labouring with a really extreme level of anxiety.”

Shelton expected his union’s meetings to be sparsely attended in the age of social distancing, when everyone has a million worries and quarantine tasks to occupy their time. But the opposite has occurred. Now the union meetings of the American Federation of Teachers are held over Zoom, and the little glowing squares on his computer screen seem to multiply with every gathering.

Shelton says the remnants of the labour movement in Wisconsin will fight further cuts and that his local union is seeing greater engagement than it has in years. The members have taken as inspiration the wave of teacher strikes in 2018 and 2019, when public workers lashed out against lower wages and worsened working conditions and won huge levels of public support.

“We typically don’t meet much over the summer, but we’ve been meeting every other week this year,” says Shelton. “The meetings have been packed because there are people who are so worried about what’s going on. The attitude is that people are anxious but not resigned. And definitely not despondent.”

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