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Home Publications Blogs Beat the Press President Obama Proposes Reducing Private Sector Employment by 7000 in 2011 and 18,000 in 2012

President Obama Proposes Reducing Private Sector Employment by 7000 in 2011 and 18,000 in 2012

Monday, 29 November 2010 23:44

Using the economic analysis that his advisers relied upon in designing the stimulus package, this would be the projected effect of President Obama's proposal to freeze the pay of federal employees. According the NYT, this will reduce the amount of money that federal employees have to spend by $2 billion in 2011 and by $5 billion in 2012.

Following the multipliers in the Romer-Bernstein paper released by the Obama transition team, we can assume that roughly half of this money would be re-spent. This means that consumption would fall by $1 billion in 2011 and $2.5 billion in 2012. The Romer-Bernstein analysis assumed that an increase in GDP of 1 percent would lead to an increase in employment of 1 million. In this case, GDP will be about 0.007 percent lower in 2011 and about 0.018 percent lower in 2012, implying drops in private sector employment in these years of 7,000 and 18,000 jobs, respectively. The NYT should have noted the impact that the Obama administration's economic team expects to result from this proposed pay freeze.

Comments (8)Add Comment
Obama the Narodnik
written by Sandwichman, November 30, 2010 12:20
This proves President Obama is a Narodnik. "wholly dedicated to the revolution, ascetic in his habits and ruthlessly disciplined, to the point of sleeping on a bed of nails and eating only meat in order to build strength for the Revolution." And FROZEN meat at that!
The one handed economist strikes again.
written by AndrewDover, November 30, 2010 8:00
On the one hand, Mr Baker has applied "multiples" to the lack of increases in federal pay, but, on the other hand, simply ignores the result of the federal government having more money to pay to extend unemployment or prevent state worker layoffs.

You will see the same logical error in the debate of the expiration Bush tax cuts. An argument will be made about how the taxes take money out of the economy, but no recognition that the government spends those taxes right back into the economy.
Federal Pay Cut Is A Good Decision
written by Ron Alley, November 30, 2010 8:22
President Obama's decision was a wise political decision. Wages for federal government employees are paid with tax dollars. When many taxpayers are unemployed and underemployed expending tax receipts for wage increases is broadly perceived as unfair. The President was wise to address that perception
written by osfp, November 30, 2010 9:46
as the sole issuer of the global reserve currency, the federal government's expenditures are not constrained by revenue. in any case, the most troubling part of yesterday's was Obama's insistence that when households and small businesses are tightening their belts, the goverment must do the same. If he really believes this, he's just called for steep recession (unless he has some secret-superman plan to massively increase exports/end the desire of the rest of the world to hold dollar-denominated assets). The government deficit is equal to private savings plus the trade deficit!
written by umass1993, November 30, 2010 10:37
AndrewDover, it's Dr. Baker to you.
Hire 7000 new employees?
written by Arne, November 30, 2010 8:54
If our educators had a pay freeze, we would hire more with the same funds. It could be a good decision if it allows such a thing at the federal level as well.
Why no pay freeze for bankers?
written by Paul, November 30, 2010 9:20
They are getting bonuses after the taxpayers bailed them out. The government workers did their jobs well, so they get a pay cut. Why is Obama sucking up to Wall Street?
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.