One Key Reason Employment Is Rising—State and Local Austerity Is Ending

It’s not a great idea to get too obsessed with the industry sub-sector breakdowns, but today’s jobs report did have some striking news about public sector employment—after a long decline induced by state and local budget cuts it’s rising again. On a seasonally adjusted basis, there were more government workers in August 2012 than in July, and even more in September.

And who’s leading the charge? As you can see above, it’s teachers.

All told, state and local education makes up about half of the public sector workforce in the United States so when we shift from firing teachers to hiring them it makes a big difference. Some other key categories, including the Postal Service (which is clearly in structural decline) and the non-education local government grab bag (cops, fire fighters) are still declining. But one important issue as we move toward recovery is how these trends in public sector employment will hold up. In principle, one of the accelerator channels driving recovery is that when the private economy grows, state and local government revenue rises without needing to hike taxes. That creates the budget headroom for your teachers and your public safety workers who, in addition to providing public services, bolster demand at local retailers and personal service providers.

But politics is a tricky thing. If extra revenue gets channeled into not-very-stimulative high-end tax cuts or is all needed to bolster damaged pension funds, then you don’t get that accelerator. And by the same token, the federal government matters. The odds look good that the federal government will tilt very heavily toward austerity in 2013 when we should be taking advantage of its cheap borrowing costs to create fun slush funds for state government.