From the end of 2007 through 2009, more than eight million jobs were lost. The national unemployment rate rose to more than 10 percent for the first time in nearly 30 years. Personal incomes and industrial output plunged. For many of those who managed to remain employed, wages stagnated or even declined as bonuses shriveled along with sales and profits. The Great Recession was the deepest and most prolonged economic downturn ever experienced by most Americans.
In his January 2009 inaugural address, President Barack Obama pointedly praised “the selflessness of workers who would rather cut their hours than see a friend lose their job” as an example of what “sees us through our darkest hours.”
But Obama never expected unionized public-sector workers to imitate their private sector counterparts. Instead, he devoted his first few weeks in the White House to fighting for an economic “stimulus” bill that included $145 billion in state and local aid designed to minimize austerity measures in state and local government.
By the time private employment finally began a sluggish recovery in early 2010, public-sector employment was dropping. This set off alarm bells in the White House. The president warned that “if additional action is not taken, hundreds of thousands of additional [government] jobs could be lost.”
The upshot: congressional Democrats last month approved another $26 billion in special aid to states and local governments. “We can't stand by and do nothing while pink slips are given to the men and women who educate our children or keep our communities safe,” Obama declared in signing the bill.
The president's rhetoric implied that the nation's schools, firehouses, and police stations were on the verge of being staffed by skeleton crews. In fact, even after a recent decline, state and local governments employ nearly 1.7 million more people than they did 2000 – a gain of nine percent during a decade when private employment decreased by a net three percent.
Obama's infusion of federal aid to states and localities didn't just “save” jobs. It also pumped up the paychecks of heavily unionized public employees who already earn more, on average, than the people who pay their salaries.
While private sector wages were dropping along with employment in 2009, the average annual wage for state government employees was up in 45 states, including fiscal basket cases such as Illinois, Michigan, New York, and New Jersey. The average local government wage rose at least slightly in every state, even crisis-wracked California. The stimulus helped make it all possible.
This result ran counter to the advice of the pro-stimulus economists at the International Monetary Fund (IMF), among others. “Public sector wage increases should be avoided as they are not well-targeted, difficult to reverse, and similar to [income] transfers in their effectiveness,” they wrote in a report issued just before Obama took office.
But the 2009 and 2010 federal stimulus packages are just a drop in the bucket compared with the cost of benefits promised to America's current generation of public sector employees. Pension and retirement health care insurance coverage for state and local government workers across the country represent unfunded liabilities that could exceed $2 trillion, and may reach $4.7 trillion. Even in the Obama era, that's real money.
The public sector compensation burden threatens to crush future generations of Americans. In the process, it also threatens to starve the very public services and infrastructure that government exists to provide.
Unfortunately, Obama's legislative agenda has mainly reflected the priorities of public sector employee unions that are the main obstacle to reform. The president's continuing push for aid to prop up the status quo has been a wasted opportunity for Washington to help in promoting real change.
E.J. McMahon is director of the Manhattan Institute's Empire Center for New York State Policy and is author of the new broadside “Obama and America's Public Sector Plague” (Encounter Books, October 2010).