jobs news July 8--losing government jobs

[palomalou]

Two questions regarding this:
1. Should we be surprised? States and cities are really hurting, so to improve their bottom lines, they lay people off.
2. How is it possible that the economy can get better with fewer jobs? We can't expect that the private sector will create more jobs due to the continuation of the lower tax rates since job creation FELL under Bush, and he was the one who lowered the tax schedule.
Am I not seeing an important aspect of this picture?

 

[samclem]

Am I not seeing an important aspect of this picture?

The loss of government jobs is good news in the long term, and even in the short term (to the degree it encourages the credit markets to believe the government at all levels is serious about reducing expenditures).

There's a very big difference between public-sector jobs and private sector jobs: Nearly every public sector job has to pass a test--if the holder isn't producing more value than the job costs, then the holder (or the job) will be eliminated. Now, in the real world there is a lot of friction, but this is still true over time: Every dollar of wages paid out produces more than a dollar in value to the economy.**
This is not true of government jobs: there is no such test. There is no natural dynamic to assure that each dollar paid out in wages to public-sector workers produces more than a dollar in benefits, especially since the folks voting for more money aren't the ones paying the bills.

**Note: the above "efficiency test" does not apply to private sector workers working on government contracts.

 

[Hamlet]

My experience with large companies in the private sector makes me question whether the difference between private and government efficiencies are really as great as people say they are.

Brutally competitive businesses need to be efficient, but there are many businesses that really don't compete in cutthroat markets. Businesses with strong moats don't require the same efficiency as businesses with weak moats.

Microsoft does not need to be particularly efficient. Neither does Coke, Pepsi, or Altria. Note that they may be efficient, but their businesses would survive pretty well with a fairly large amount of inefficiency.

My experiences in the financial services industry lead me to believe that efficiency is not a must have in many of those businesses either.

The loss of government jobs is good news in the long term, and even in the short term (to the degree it encourages the credit markets to believe the government at all levels is serious about reducing expenditures).

There's a very big difference between public-sector jobs and private sector jobs: Nearly every public sector job has to pass a test--if the holder isn't producing more value than the job costs, then the holder (or the job) will be eliminated. Now, in the real world there is a lot of friction, but this is still true over time: Every dollar of wages paid out produces more than a dollar in value to the economy.**
This is not true of government jobs: there is no such test. There is no natural dynamic to assure that each dollar paid out in wages to public-sector workers produces more than a dollar in benefits, especially since the folks voting for more money aren't the ones paying the bills.

**Note: the above "efficiency test" does not apply to private sector workers working on government contracts.

 

[youbet]

My experience with large companies in the private sector makes me question whether the difference between private and government efficiencies are really as great as people say they are.

Brutally competitive businesses need to be efficient, but there are many businesses that really don't compete in cutthroat markets. Businesses with strong moats don't require the same efficiency as businesses with weak moats.

Microsoft does not need to be particularly efficient. Neither does Coke, Pepsi, or Altria. Note that they may be efficient, but their businesses would survive pretty well with a fairly large amount of inefficiency.

My experiences in the financial services industry lead me to believe that efficiency is not a must have in many of those businesses either.

I'd look at it this way.......

The most efficient gov't organizations are probably more efficient than the least efficient private sector organizations. But I'd bet that on average and over time, private sector organizations tend to be more efficient that gov't organizations.

This opinion is from someone who worked for both the state of Illinois and for MegaCorp and whose family was heavily involved in Chicago Dem Machine patronage.

 

[Hamlet]

I'll agree with that.

I also suspect that the state government of Illinois is probably less efficient than the average government organization

I'd look at it this way.......

The most efficient gov't organizations are probably more efficient than the least efficient private sector organizations. But I'd bet that on average and over time, private sector organizations tend to be more efficient that gov't organizations.

This opinion is from someone who worked for both the state of Illinois and for MegaCorp and whose family was heavily involved in Chicago Dem Machine patronage.

 

[youbet]

I'll agree with that.

I also suspect that the state government of Illinois is probably less efficient than the average government organization

Well, it's a very Blue state with very strong public unions and a history of patronage. Whether our more pay for less work status is a good thing or not would be in the eye of the beholder. I'm sure some would say that other states ask too much and pay too little compared to Illinois.

I do know we're in a world of hurt on state finances despite having our state income taxes increased 67% across the board.

 

[GregLee]

Nearly every public sector job has to pass a test--if the holder isn't producing more value than the job costs, then the holder (or the job) will be eliminated.

Maybe, but I have a suspicion that is not what you meant to say.

 

[samclem]

My experience with large companies in the private sector makes me question whether the difference between private and government efficiencies are really as great as people say they are.

Brutally competitive businesses need to be efficient, but there are many businesses that really don't compete in cutthroat markets. Businesses with strong moats don't require the same efficiency as businesses with weak moats.

The important thing is whether the jobs are producing something of greater value than the value of the wages. If they are (and to the degree they are), then society benefits-there is a net improvement in societal wealth.
When we buy a copy of Windows 7, we may gripe that Microsoft is fat, that their employees are overpaid, that the software is buggy and doesn't do anything significantly better than Windows XP, etc. But, we had the choice to buy it or not. When I buy it, I agree that, overall, the product's value to me exceeds the price I pay. There may be a lot of other factors "forcing" us to buy that product, but in the aggregate and over time, there has been an opportunity to punish or reward Microsoft, and their workers, for the total value they bring to the market. They got punished for Vista. They are constantly at risk of losing market share. And this is in what is one of the least competitive and most "warped" retail sectors, the situation is much clearer in other areas.
"When I buy it, I agree that, overall, the product's value to me exceeds the price I pay." There's no similar test for the services provided by public employees, because the people buying the services are not the same as the people paying for them. Moreover, there's often one supplier of the services, and they have very little inducement to improve efficiency.

 

[MichaelB]

Two questions regarding this:
1. Should we be surprised? States and cities are really hurting, so to improve their bottom lines, they lay people off.
2. How is it possible that the economy can get better with fewer jobs? We can't expect that the private sector will create more jobs due to the continuation of the lower tax rates since job creation FELL under Bush, and he was the one who lowered the tax schedule.
Am I not seeing an important aspect of this picture?

There have been at least a dozen threads about public sector pensions, states with unfunded pension liabilities, pension shortfalls, muni bond defaults, etc over the past year. Dear Meridith Whitney, who rose to fame by calling out Citibank before the credit crash, has said there will massive defaults because states and local gov't are unable to meet their collective obligations. Pew research center has estimated the unfunded pension liability to be around $1T.

Despite the media circus, some of these concerns are legitimate, and States are attempting to deal with them.

So, to answer your questions,

1. No, we should not be surprised. We should see this as part of a long lasting effort by states and local to fund current operations and future obligations. This will continue.

2. The economy can't get better with fewer jobs.

We're in an economic cycle. Things are gonna get worse no matter what we do. Then, they will stop getting worse and start getting better. In the meantime, lots of ideology and partisan thinking will be attributed to all that, even though it's mostly just the way life is. But it will provide for some great threads, keep the cable news audience glued to their seats, and probably lead to more than one thread around here being abruptly closed after unheeded stern warnings from the moderators to behave.

 

[youbet]

Fewer gov't jobs means that as a society we have noted that we can afford fewer services to be provided for us by the gov't. In good times, we tend to expand what the gov't provides for us thinking in terms of "what's the right thing to do?". In severe bad times, we try to prioritize and cut back by doing more for ourselves and doing without.

Of course, since politicians are involved, the prioritization process is politicized with some wild results. For example, in Illinois the first thing they threaten to cut is police and fire protection and other critical needs while quietly leaving discretionary services in place. Just a little tactic to get our attention.........

 

[Hamlet]

This a completely different thing than efficiency though.

Many vitally important things in our society are done with horrible inefficiency (paraphrasing Gailbreth).

Take water and sewer. I pay my city for water and sewer service. I am sure that they are not particularly efficient in delivering that service. There are probably people working for them that are taking 2 hour lunch breaks and spending half their day on their fantasy football websites (not vastly different from some people in private companies I've worked for ).

However, I'm still paying less than $50/month for water on tap and a basically unlimited hole to dump wastewater down.

It sure beats the alternative of drilling my own well and setting up my own septic field. Note that if people in my neighborhood all started trying to build septic fields, we would have a problem, since the lot sizes don't really allow for it to be done properly.

In theory, we could have private companies try to build water and sewer networks and charge to connect to them, but the logistics of it are daunting, and the advantage of competition would probably not outweigh the giant advantage of only needing to build one set of infastructure instead of multiples. I believe that economists call this a natural monopoly.

Overall, it makes more sense to have the city provide my water and sewer, even if they aren't particularly good at it.

The important thing is whether the jobs are producing something of greater value than the value of the wages. If they are (and to the degree they are), then society benefits-there is a net improvement in societal wealth.

 

[chinaco]

According to this economist... we have been having labor problems all during the 2000 decade since the tech bubble burst.


Job market woes predated recession, experts say - CBS News

"The size of the economy is actually bigger than it was before the recession hit. However, we're lucky if we've got a quarter of the jobs back," said economist Lakshman Achuthan.
Achuthan sees a fundamental shift in the economy that's affected our ability to create jobs - but says the jobs problem wasn't caused by the recession.

"Something was ailing our economy before the great recession in the jobs market," he said.

In the 1970's, 80's and 90's, the U.S. economy created more than 18 million jobs during each decade. But from 2000 to 2007, the economy added only 7 million jobs.
"The seven years before the great recession hit marked the worst business cycle we have on record as far as job creation goes," said economist Heidi Shierholz. "We have now faced about 11 years of really weak job growth."

 

[kyounge1956]

My experience with large companies in the private sector makes me question whether the difference between private and government efficiencies are really as great as people say they are.

I think size may have at least as much influence on overall efficiency as public vs private. I and my fellow government employees sometimes gripe about the various inefficiencies of our workplace—then I come here and hear about the same type of problems from E-R members who work in the private sector.

I don't expect a large organization will ever be really nimble and efficient, any more than a tractor-trailer rig is going to handle like a sports car, or a McMansion will use every cubic inch of space the way an RV does.

 

[samclem]

This a completely different thing than efficiency though.

Yes, exactly. I'm just saying that, in the ideal case, every dollar spent in private wages (and by extension, every private job), makes us all richer because it produces more net value to society than it consumes. There's a market and a dynamic that has this result.

There's no similar dynamic at work with regard to public sector jobs, so we have no prima facie reason to expect that the loss of public sector jobs is a net loss to society. Might be, or might not be.

 

[eridanus]

Yes, exactly. I'm just saying that, in the ideal case, every dollar spent in private wages (and by extension, every private job), makes us all richer because it produces more net value to society than it consumes. There's a market and a dynamic that has this result.

There's no similar dynamic at work with regard to public sector jobs, so we have no prima facie reason to expect that the loss of public sector jobs is a net loss to society. Might be, or might not be.

In the "ideal case" and "Might be, or might not be." That's not exactly a convincing argument.

 

[ziggy29]

According to this economist... we have been having labor problems all during the 2000 decade since the tech bubble burst.

Employment and real wages -- particularly in the private sector -- have been weak relative to GDP growth and corporate earnings since dot-com bubble popped in early 2000. Every "recovery" since then has been relatively jobless, not nearly producing enough new jobs (except in India and China) to absorb all the people made jobless by the previous recession.

I suspect in a decade or two, people are going to look at 5% unemployment as a fluke. And maybe 10% won't seem unusually high to us in a few years.

 

[Hamlet]

There is the assessment of the voting public that tends to create an upper limit on the inefficiency of government.

It's not as strong as most private businesses, but it is there.

There are also many goals of a society that are difficult to measure in economic terms, but that does not mean they aren't real.

From an economic standpoint, SS and Medicare are mostly wasted money, since the people that they support are done working for the most part. Economically, we would be better off as a society if we pushed the retired poor onto the iceberg eskimo style.

That's probably not the way most people want their society run, though

Yes, exactly. I'm just saying that, in the ideal case, every dollar spent in private wages (and by extension, every private job), makes us all richer because it produces more net value to society than it consumes. There's a market and a dynamic that has this result.

There's no similar dynamic at work with regard to public sector jobs, so we have no prima facie reason to expect that the loss of public sector jobs is a net loss to society. Might be, or might not be.

 

[ERD50]

Yes, exactly. I'm just saying that, in the ideal case, ... Might be, or might not be.

In the "ideal case" and "Might be, or might not be." That's not exactly a convincing argument.

Not everything is black & white, and putting things in black & white usually means somebody is trying to hide or over-look something.

In general, I think samclem is right - there are more bounds on the private sector (turn a profit or else) than there is on the public sector (raise taxes if things don't go well). That said, I was shocked at some of the inefficiencies in the for-profit-MegaCorp I worked for. But there was a limit.

Employment and real wages -- particularly in the private sector -- have been weak relative to GDP growth and corporate earnings since dot-com bubble popped in early 2000.

I lived through an almost "Tulip- Mania" sized bubble at my MegaCorp. When you have high demand for a product, you do almost whatever it takes to fill the demand. Efficiency takes a back seat. Filling the order is a much bigger deal than filling the order at 10% less cost, if it means risking losing the sale. So you do what it takes, and that often means spending more to "just get 'er done".

But when orders dry up - efficiency is the new (returning) king. This is what we are seeing in many markets, relative to 2000. Because I've lived this, the term 'jobless recovery' makes perfect sense to me - it is what I would expect. I'd be shocked to see anything different.

-ERD50

 

[samclem]

There is the assessment of the voting public that tends to create an upper limit on the inefficiency of government.

This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.

 

[Westernskies]

This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.

+1

 

[DoraM]

This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.

+2

 

[eridanus]

This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.

It's a false dichotomy. Everyone* votes "rationally" to increase their services, regardless of whether they pay taxes or not. In other words, everyone's asking for a third piece of pie (because, goshdarnit, I paid for it!). Look at the "I'm entitled to my SS" arguments on this forum. The contributions wouldn't support an annuity at their pay-out.

The Economist had an article about city pensions and, specifically, Atlanta's underfunded liabilities. The Mayor fought the civil servants tooth-and-nail and finally won concessions. The alternative, of course, was defaulting on city pensions in ~5 years. We may face this scenario nationwide in a few weeks.



*Not 100% everyone but nearly everyone. It's why we're in this mess in the first place.

 

[Hamlet]

You're ignoring that those people are also paying FICA, Medicare taxes, gas taxes, corporate income taxes whenever they buy goods, etc. Income taxes only make up about 42% of the Federal government's revenues, but people keep pretending that they are the whole story.

You are also ignoring that most states have a regressive tax burden. The middle class generally pays a higher percentage of their income in state and local taxes than the wealthy do. Sales and property taxes are generally pretty regressive. Sin taxes are extraordinarily so.

Just about everyone who works has a decent amount of skin in the game. Even when I worked at McDonald's in high school, I noted how much smaller my takehome pay was than my gross pay.

This feedback/homeostatic mechanism ain't gonna work when 50% of the voting public pays just 2.7% of the federal income tax burden (and pays just 2.6% of their income in FIT (link, 2008 numbers)). They get far more in services than they pay, and it is rational for them to vote for more services, subsidies, transfer payments, etc. When someone else is paying my tab in the restaurant, I don't much care how efficiently the place is run--but I'll have another piece of pie, thanks.

 

[ERD50]

Sales and property taxes are generally pretty regressive. Sin taxes are extraordinarily so.

I don't think your terms here are correct. AFAIK, sales and property taxes are a "flat tax", as are "sin taxes".

It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.

And then there are fixed taxes (sometimes call a "head tax"), like the sticker for my car, the connect fee I pay the (monopoly) utility company, etc. Same amount regardless how much I use the product.

-ERD50

 

[Hamlet]

I'm pretty sure that is the commonly understood definition of a regressive tax.

When people talk about the "Fair tax" (a national sales tax), even proponents talk about using rebates to counteract it's regressive nature.

It might be true that a low-middle income earner spends a higher % of their income on these things - but the tax itself is still flat. They don't change the tax rate based on income.
-ERD50