Labor pains on Labor Day

Gretchen Hamel Executive Director, Public Notice
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For most Americans, the Labor Day weekend will be a welcome reprieve from the nine-to-five grind. But for nearly 15 million Americans, today is little more than a sad reminder they are without a job.

The number of people currently unemployed is almost double what it was at the start of the recession in December 2007. Eleven states currently report unemployment rates over ten percent. And these figures do not account for the millions who have given up looking for work, or settled for part-time jobs or jobs for which they are highly overqualified.

Since the end of 2007, the hospitality industry has lost half a million jobs. Same for the financial sector. The retail industry has lost over a million jobs. The manufacturing sector has lost two million.

You might be wondering if any sectors have added jobs. One notable sector that has thrived: government. Since the recession began, the federal government has added 262,000 jobs. At a time when everyone else is being forced to tighten their belts and make painful budget cuts, many are perplexed by the fact that government continues to grow.

Currently, the government workforce is 22.5 million strong. That means 22.5 million workers are relying on American taxpayers — not the goods-producing private sector — for their paychecks. While these jobs may put food on the table, are more government jobs really a path toward recovery?

The problem is not just that the government sector is growing while the rest of the labor market is shrinking; it’s also that those jobs appear to be paying above-market wages.

According to new data from the Bureau of Economic Analysis, average compensation (wages plus benefits) for a civilian federal employee is $123,000; for the private sector the same figure is $61,000. Even the most conservative estimates (adjusting for differences in skill level and experience) suggest that private sector employees have to work for 13.5 months to make the same amount that government employees make in 12 months.

While government seems highly confident in its decision to grow, the business world is not. Businesses are currently holding on to an estimated $1.8 trillion in cash reserves — money that is desperately needed to drive innovation and job creation. But why?  In a word: uncertainty.

These enormous cash reserves are largely a result of uncertainty and lack of confidence about policies coming out of Washington. All of the unknowns surrounding economic policy (e.g. which taxes will increase and whether stimulus money will continue to distort the market) have left businesses unable to plan – to decide where or when to invest, whether to expand and hire. So they wait, as does our recovery.

Washington continues to hold to its claim that its dramatic increase in spending has helped economic growth. For instance, a recent report from the Congressional Budget Office suggested that the $862 billion so-called “stimulus” act created between 1.4 and 3.3 million jobs.

But as former chief economist at the Bureau of Labor Statistics, Diana Furchtgott-Roth, recently point out, the government promised us that enacting the stimulus would keep the unemployment below 8 percent (it’s currently 9.6 percent). Furchtgott-Roth criticized the new report and asked, “If its models failed to accurately predict the effects of the stimulus bill then, why should we believe the models now?”

Many Washington officials spent the last three months participating in a nation-wide tour, dubbed “Recovery Summer,” to convince the public that government spending has worked to assuage the nation’s labor pains and jump-start economic growth.

However, without real jobs and economic growth to back up the claims, Washington’s stimulus victory tour has done little but frustrate those who can plainly see the lackluster results. The greatest service we can do for the unemployed is to demand government get serious about the unemployment epidemic by cutting spending and restoring the private sector’s confidence. It’s high time we stop playing politics with Americans’ livelihoods and there’s no better time to start than today.

Gretchen Hamel is the executive director of Public Notice, a new independent, bipartisan, non-profit organization dedicated to providing facts and insights on the effect public policy has on Americans’ financial well being. For more information please visit www.thepublicnotice.org.