States shed government jobs as revenue plummets

Published 1:00 pm Friday, March 26, 2010

Pennsylvania, Michigan and Washington shed government jobs last month, a result of shrinking state tax revenue that economists fear could weaken the recovery.

State and local government jobs have traditionally provided a haven during economic downturns. But as states have struggled to close growing budget gaps, job cuts have spread.

That trend emerges from data on a dozen states that have released their employment figures in advance of a federal report Friday on state joblessness for February.

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In Michigan, where the unemployment rate is 14.1 percent, the nation’s highest, government jobs at all levels fell by 5,000. They accounted for one-third of the state’s job losses.

Pennsylvania lost 2,200 government jobs. Minnesota lost 1,900 and Massachusetts 1,500.

Washington state shed 900 government jobs in February. And Wisconsin lost 2,100 government jobs, including 1,600 at the local level.

Economists are pointing to the states’ budget problems as a potential threat to the economic recovery. In addition to job cuts, states are reducing services and raising taxes to close their deficits.

“The drag from state and local government will continue to shave a few points off (economic) growth, further slowing an already modest recovery,” Mark Vitner, a senior economist at Wells Fargo, wrote in a research note this month.

The Center on Budget and Policy Priorities, a liberal think tank, estimated last month that 45 states have cut spending and more than 30 have raised taxes. The Great Recession has caused state tax receipts to fall by a record amount, the center said. Higher taxes and budget cuts tend to limit overall spending by reducing consumers’ disposable income.

The fiscal problems facing state and local governments “will be an important headwind for the economy well into the overall recovery,” Ethan Harris, head of North American Economics at Bank of America Merrill Lynch, wrote in a note to clients this week.

Some states managed to post overall job gains for February. They included Massachusetts and New Jersey. Wisconsin, like other states, lost government jobs — 2,100 of them. But it added enough private-sector jobs — 7,300 — to more than make up for the loss. And its unemployment rate stayed at 8.7 percent, well below the national rate of 9.7 percent.

Construction, manufacturing and administrative support positions provided most of Wisconsin’s gains in private-sector jobs. Administrative support includes temporary jobs, which have jumped nationwide in the past five months.

Wisconsin’s neighbor Minnesota said its jobless rate also was unchanged, at 7.3 percent. It shed 3,400 jobs. But that drop followed a sizable gain in January of 17,200 jobs.

Minnesota reported more jobs in trade, transportation and utilities; manufacturing; and information, which includes the broadcasting, telecommunications and publishing industries.

New Jersey gained 3,700 jobs, and its unemployment rate fell to 9.8 percent from 9.9 percent. The state’s sharpest job gains were in financial activities, professional and business services, and education and health services.