Unemployment Figures, Good and Bad…

Originally written: July 12, 2011

The June unemployment figures landed with a hard thud. Barely 18,000 net jobs created—economists were predicting over 100,000—pushing the unemployment rate up to 9.2%, the second monthly increase in a row.

But when the numbers are analyzed, much of the loss in jobs came from the government sector, local, state, and federal.

Shouldn’t this be a cause for celebration? After all, the focus of the Tea Party is to cut government spending. The only way to significantly cut government spending is to cut the size and scope of government. A large fraction of government spending is payment to government workers. To the extent Americans think their government is too large and spends too much, they must believe it does things that are better not done, or better done by the private sector, or done more efficiently. In all these contexts, a cut in government workers is what is desired. Anyone who has ever watched road construction surely must believe fewer government workers is not always an unmitigated tragedy. Anyone who has ever stood in line at the DMV or Post Office must believe there are still some productivity gains to be eked out of the government workforce. Anyone who hears of cuts in the IRS auditing staff must be forgiven if they cannot hide the smile.

So people of the Tea Party persuasion should celebrate, not be dismayed, at hearing of a downsizing in government workers. The REAL concern is that insufficient jobs in the private sector are being formed to absorb them (and many others.) This is not a necessary result of government downsizing. Within a year of the massive downsizing in the federal government (both military and non-military) at the end of World War II, the private sector, in a post-war boom, absorbed them all and more.

Unemployment is a big problem, but one must do more than just trend the unemployment rate. A dropping unemployment rate can be a bad thing if the new jobs are just government make-work. A rising unemployment rate can be a good thing if it is a temporary adjustment—a bump in the Beltway road—to a drop in government workers.