One point that doesn’t get a lot of airtime in current economic discussions is just how much the US government has cut back on its worforce in recent years. Government employees are still off by 491,000 since the start of 2008.
This is an unprecedented cut in total government employees. No President in the post-war era has presided over two terms in which government employment declined through his Presidency. Not Reagan, not Bush, no one. In general, they were all huge expanders of government employment.
What’s interesting about all of this is the labor force participation rate which is often cited as a sign of structural weakness in the US economy. Which is true to some degree. But how much of this decline in the participation rate is due to the government job cuts since 2008?
I went back and ran the figures and added in the trend growth in government employment since 1950. Rather than cutting half a million jobs since 2008 the US government would have added about 2.4 million jobs. In this scenario the labor force participation is 64% vs today’s actual rate of 62.8%. Since the rate peaked at 67.3% it’s declined by 4.5 points. In other words, the government’s job cuts have accounted for 27% of the decline in the labor force participation rate. And who knows how much all of that lost input and income could have further multiplied growth and employment….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.