State Spending Cuts Kill Private Sector Jobs

Recent debates about the impact of state taxes and spending have taken place in a “fact-free” zone, where anti-tax advocates urgently warn that “taxes kill jobs” without offering any evidence that this is true.

Thanks to recent analysis by economist Adam Hersh at the Center for American Progress, we now have some fresh data on the health of the economy in states that cut their budgets in recent years compared to those that increased spending. 

The verdict: Those states that made steep public spending cuts in the wake of the Great Recession have seen weaker economic growth in the years since. Budget-cutting states have experienced rising unemployment, fewer new private sector jobs and weaker economic growth than the states that increased spending.

While this analysis does not tell us whether the spending cuts caused the negative economic outcomes, it is clear that steep spending cuts are correlated with markedly worse economic performance.

This could all be very bad news for Pennsylvania, where lawmakers and Governor Corbett recently enacted a 2011-12 state budget with deep cuts to education, health care and human services. Overall, the budget cuts spending by an inflation-adjusted rate of 4%, as the Keystone Research Center notes in a new policy brief interpreting the Center for American Progress data.

So what does that mean for jobs? Hersh estimates that every 10% cut in state spending is associated with a loss of 1.6% of private-sector jobs in the state. In Pennsylvania, 1.6% of private employment is just under 79,000 jobs.

So with a 4% inflation-adjusted cut in the 2011-12 budget, Pennsylvania is at risk of losing nearly 32,000 jobs.

To put it in perspective, this is nearly three times the number of jobs created by core Marcellus Shale industries between late 2007 and 2010.

The bottom line here is that the impact of spending cuts on jobs is not just theoretical — it will substantially impact real workers, real families and real communities.  That’s what the evidence from other states tells us. If only our elected leaders would listen.

Below are Hersh's scatterplots of the relationships between changes in spending and unemployment (Figure 1), private employment (Figure 2) and real state GDP (Figure 3).  In each plot, the solid red line shows the relationship between the variables on each axis.  

Who say's data geeks are no fun!

 

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