Cutting Spending In this Disastrous Recession Is Just Another Way of Assaulting Working America Print
Eileen Appelbaum
AlterNet, March 14, 2011

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The Great Recession officially ended in June 2009. However, millions across the country are still feeling the pain of a labor market that hasn’t yet recovered. Despite this, calls for budget cuts and austerity threaten to slow or reverse any growth in employment. In fact, recent reports from both Goldman Sachs and Moody’s Financial suggest that enacting the GOP cuts could cost the nation 700,000 jobs over the next few years. And while the Great Recession was sometimes referred to as a "man-cession," with much of the losses felt by men, this time, the pain will fall disproportionately on women.

Since the Great Recession was formally declared over in June 2009, the economy has experienced only two quarters of above-trend growth in real GDP – growing at an annual rate of 5.0 percent in the fourth quarter of 2009 and 3.7 percent in the first quarter of 2010. For the rest of 2010, real GDP growth was disappointing – a point driven home in the recent downward revision of fourth-quarter GDP growth from 3.2 to 2.8 percent. CBO projects output growth at 3.1 percent in 2011. At this rate, employment--which in January 2010 was still below its December 2007 level by more than 7.7 million jobs-- will add just 2 million jobs. That’s a scant 1 million more jobs than are needed to keep up with the growth of the working-age population, and will reduce unemployment by just half a percent this year.

The economic problem is clearly one of lack of demand. The pain experienced by workers as a result of the slow growth in real GDP is palpable. Yet, there is no leadership in Washington and no grassroots political pressure to renew, let alone expand, government stimulus measures. Quite the contrary: fiscal policy in 2011 and 2012 looks set to embrace spending cuts that will reduce the rate of real GDP growth below CBO’s forecasts, rates of growth already too low to make much of a dent in the unemployment rate..

The deal struck by the president and Congress at the end of 2010 – the extension of tax breaks, including for the wealthiest Americans, and unemployment insurance benefits for the long-term unemployed – was intended to offset the effects of the winding down of the 2009 fiscal stimulus measures. Spending cuts at the state and local levels are already undermining the effect of the tax deal on growth and job creation. The further cuts demanded by Republicans in Congress and the attacks by governors on state and municipal workers are unconscionable.

Goldman Sachs economist Alec Phillips estimates that the spending cuts in the bill passed by the House will result in a drag on GDP growth of 1.5 to 2 percentage points in the second and third quarters of this year compared with current law. The House has not yet considered the FY 2012 budget, so Phillips doesn’t examine 2012 effects. That would reduce real GDP growth to about half the 3.1 percent growth rate projected by CBO. Moody’s Mark Zandi estimates that the spending cuts proposed by House Republicans would reduce GDP growth in 2011 and 2012, and would mean 400,000 fewer jobs created this year and 700,000 fewer by the end of 2012.

Where the negotiations between the House and Senate on the FY 2011 and FY2012 spending bills will end up is anybody’s guess. Both Zandi and Phillips are confident that a deal will be struck, but even more “modest spending cuts,” as Phillips describes them, would shave 1 percentage point off of growth in the middle of this year. He expects the rate of real GDP growth to recover by the end of 2011, but that projection was made in the absence of consideration of Republican spending cut proposals for 2012. Both analysts view this emphasis on immediate cuts in spending as less than ideal as economic policy, but both believe, as Zandi put it, that “the economy will be able to manage through it.”

While the economy – whatever that abstraction means – may "manage" through it, the same cannot be said for the almost 15 million Americans who are unemployed, a figure that rises to 25 million when we add in the underemployed and those who have given up looking for work. For them, more than three years after the start of the recession, the pain continues unabated. Anemic job growth in the 20 months since the recovery began has deepened their plight. The economy shed more than 8.7 million payroll jobs between the onset of the recession in December 2007 and February 2010 when the slide in jobs finally ended. In the 11 months from February 2010 to January 2011, the economy added just over 1 million jobs.

Phillips also looks at the macroeconomic effects of cutbacks at the state and local levels, and concludes they are minor – likely to shave just half a percent of the rate of real GDP growth in 2011. But macroeconomic effects encompass employment as well as output. Here the picture is far darker. Moreover, the effects of these cuts fall disproportionately on women.

The two bright spots in the employment picture--sectors where job growth held up through the recession-- are education/health services and government. As overall employment fell from December 2007 to February 2010, education and health services added 844,000 jobs. And as overall employment recovered, this sector added another 369,000 jobs – more than a third of all jobs added in the last 11 months. Men, who made up 23 percent of employment in this sector in December 2007, accounted for 25 percent of the jobs added during the period when the labor market was contracting and 33 percent of jobs added since February 2010. Job growth in this sector, which has provided an essential support to the labor market, is threatened by proposed cuts in Pell grants to students for tuition assistance and by state cutbacks in Medicaid spending.

Employment in the government sector also held up during the recession. The gender composition is more mixed in this sector, with women holding 57 percent of jobs and men 43 percent. Government employment expanded from the beginning of the recession through the second quarter of 2010, adding 607,000 jobs over that period, with men accounting for just over half the increase. In the third quarter of 2010, the beginning of the new FY2011 budget year in most states, government employment dropped sharply. Nearly half a million government jobs were lost in that quarter alone, with women absorbing 60 percent of the job losses. A total of three-quarters of a million government jobs were eliminated between May 2010 and January 2011. Job loss in this sector slowed in the fourth quarter of 2010, but women accounted for 96 percent of the jobs lost in that quarter, a situation that continued in January 2011.

In contrast to earlier postwar recessions, the federal government continues to deny states additional resources to see them through a period of continued weak tax receipts. As a result, budget battles are heating up in states governed by Democrats as well as Republicans. Governors who slash jobs and vital services – including K-12 education, health care for children, and supportive services for the elderly and disabled – are being hailed as heroes. We can expect sharp job losses again in this sector in the third quarter of this year as FY2012 budgets take effect in the states.

These developments do not bode well for the labor market and workers’ job prospects. Cutbacks in government employment and slower growth in education and health services places greater responsibility for job growth on private sector employers. They performed weakly last year, and are expected to do only marginally better this year. Job growth for women in the private sector outside of education and health services has lagged behind even the slow recovery experienced by men. More than a quarter of all payroll jobs lost between December 2007 and February 2010 were lost in manufacturing – 30 percent of these by women. In the recovery since then, only 7 percent of manufacturing jobs have been regained. All of the job gains, however, have gone to men while women in this sector have continued to lose jobs.

The economy, as Zandi and Phillips contend, is likely to continue to grow, albeit slowly, but the outlook for workers remains grim. In the absence of a further federal stimulus and a new round of revenue sharing with the states, the pain for workers will continue, with much of it falling on women.