The LFO has taken to putting out,
between legislative sessions, a monthly newsletter investigating fiscal topics
of its choosing, and in this past month among other items looked
at Louisiana’s job growth relative to the south and the country as a whole.
Choosing Feb. 2010 as a baseline, due to the judgment that this was the nadir
of the 2008 recession, since then (through Aug. 2014 preliminary figures) overall
employment growth has lagged the south and country. This is because while
private sector job growth has been about the same for all three, there has been
substantial retraction in government employment in Louisiana. This could
explain why sales and income tax receipt increases have been tepid.
But to focus on this alone, if
not reductionist, stops way short of fully understanding the dynamics. In
March, for the first
time ever the state cracked the 2 million employed number, and while
receding slightly from its April high mark since is still above that benchmark.
And the August preliminary number showed the most people in the active
workforce ever for the state, at about 2.13 million. As a result of these numerical
perambulations, the state’s unemployment rate fell from its 6.9 percent rate in
Feb. 2010 to the preliminary 5.8 this August – which is up considerably from
the early spring number of 4.5 percent, as a result of about 30,000 more people
in the labor force in that six months but only about 1,000 more jobs over that
period. By contrast, government
jobs have fallen 10 percent from that Feb. 2010 baseline, or about 34,000,
and over 2,000 alone since the spring – leaving the fewest government jobs in
Louisiana since 1991.
Also worth noting is that in
recent years Louisiana consistently
has outperformed the rest of the country in terms of unemployment, both in
measures of the proportion of the active labor force employed (the “U-3”
measure) and in workforce utilization, which excludes not only the unemployed
but the underemployed as counting as fully employed (the “U-6” measure).
However, these have been converging as of late, as the U.S. unemployment has
been coming down faster and Louisiana’s underemployed has been increasing.
Finally, in terms of labor force participation rates (that is, the proportion of
the entire working age population at work), Louisiana historically
has been below the national average but in recent years has declined more slowly
as the country has fallen to its lowest rate in over 35 years, while state’s
rate of a year ago of 59.2
is its lowest since 1992.
A few conclusions may be drawn
from these numbers. First, had not so many government jobs been cut – and most
would come as a result of state policy decisions that also affected local
governments, while few would be attributable to federal government actions –
likely the state would have lagged not just in terms of private job growth
creation, but also lagged worse in overall rate of job expansion. While some of
these jobs disappeared in the sense that they were lowly productive and made
marginal, if not negative contributions to output, many were transferred into
the private sector. Freeing resources from unproductive jobs enabled the state
to transfer them to ones more needed, and formerly state jobs became more
productive in the non-government sector (such as with the privatization of
operations of most state hospitals). The former allowed tax dollars to be
stretched further, while the latter created more tax revenues.
Second, the transformation away
from a disproportionately large public sector – in 2011
Louisiana was 11th highest for state and local government spending per capita among the 50 state and the District
of Columbia, and the highest in the south and southwest by far with only New
Mexico even close – is a process that will cause labor force dislocations that
will take years to translate into improved job creation. As indicated by the
converging unemployment rates, unleashing into the workforce a number of
individuals who believed they had a job for life and had minimal incentives to
try to position themselves to compete for hiring outside of government in a
competitive market creates an environment where it will take time for them to
get up to speed or to choose to move out of state.
Or, thirdly, who wish to participate
in the labor force at all. With the generous pension and health benefits for
retirees offered by the state and local governments, a disproportionate number
of these laid-off individuals will choose retirement. For years they will
constitute a small but significant drag on labor force participation, and disproportionately
receive state transfer payments (and pay less in income taxes, with the tax breaks
given to retirees drawing state pensions). They will join the historically
proportionally larger group in Louisiana than in other states that relies upon
other kinds of transfer payments rather than working, given a state political
culture that has overemphasized government redistribution of wealth and
underemphasized provision of a quality education, reflected in the lower rate
of labor force participation relative to the country.
Therefore, and fourth, given
lower unemployment, lower participation, average private sector job growth, and
retrenchment in government employment, the right-sizing of government has
started a process of transformation that both temporarily inflates unemployment
and will eat into the disengaged working-age population. With government doing
as much as it was for less, this allows resources that otherwise would have been
consumed additionally by bloated government to be kept in the private sector to
allow for job creation. This elevating or work benefits compared to not
working, or that actual availability of new jobs, can entice the disengaged
into the workforce, which because they now are looking at first will show up as
a rising unemployment rate – perhaps the opening phase of that having shown up
in the last few months – but then be reduced as jobs become created because of
the deployment of more private capital.
This may take awhile, but surely
in time for the anticipated job growth courtesy of the several
recently-announced business locations and expansions. Two other things also
lend optimism here: that, for the first time in two decades Louisiana’s
population is expanding at least close to the national rate (slightly behind it
as of 2010-13 data,
but much more closely than
the 1990-2010 period), thereby expanding the labor pool more, and that the
state has a disproportionately
younger population, where the younger are more amenable to relevant job
training.
Thus, revenues for the state have
not grown that much, because of relatively smaller job growth caused by
shedding government jobs. But because already there exists a historically
higher overhang of unengaged adults, the increase in that group from this dislocation
has been relatively smaller than experienced in the rest of the country as not
all states are cutting as much public sector jobs as the Pres. Barack Obama
Administration drives federal government expansion ever higher, and that they
had less slack in their workforces to begin with. Further, this has freed both
human and financial resources to be deployed in more productive ways, with the
former beginning to show up as the unemployed seeking work.
The transformation will not work
overnight. But as state government policy sets up the conditions for greater
economic growth – even with national policy providing headwinds with the most
anemic economic recovery in history still sputtering along – in the next couple
of years Louisiana should see significantly better private sector job growth,
with an increase in tax revenues to match. In the best case scenario, that
begins to increase the participation rate disproportionately. However, being
early along in the process, this is why we observe what we do concerning these
fiscal and labor metrics.
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