Government Employment vs. Spending

Cafe Hayak had a good primer on Government Employment today. This revelation wasn’t shocking if you are up to date on the state/local austerity measures, but the data from the post is still useful.

“Using the most recent preliminary numbers (for June) shows that employment is down by about 640,000 from the peak in 2007 and 2008 which was in August of 2008.”


In the last decade, we have increased governmental spending.  There are a few that believe that the increased spending has prevented the economy from becoming worse.  The epicenter is jobs.  More governmental spending means more governmental jobs right?

Say it ain’t so. 

The first item I examined was the increase in total governmental spending.  (need better reference)

Comparing 2002-2010 total government as a percent of GDP increased from 34.74% to 40.75%.  The increase in government spending amounts to ~17%.  Over this same period from 12/2002 – 12/2010 government employment increased from 16.6% of the workforce to 17.1%.

  • ~17% increase in Governmental spending
  •  ~3% increase in Governmental employment.
  • Unemployment rose from 5.8-9.6%

The money disproportionately went to some other place than governmental employees.  I came up with possible ideas why the ratio is out of line.  The first thing that came to mind is technology.  With technological progress, government may spend more on capital good and equipment than people.  We’ve had quite a bit of technological progress since 1950, so I examined 1950-2010.

  • ~70% increase in Governmental spending.
  • ~26% increase in Governmental employment.

This clarifies that the 2002-2010 era displayed hiring constraint, and it probably had little to do with technological/automated process.  The cause could also be outsourcing/military spending.  I hear Reagan did quite a bit of spending on the cold war, and searched out the greatest increase in spending during his tenure. 

  • Between 1979-1893 Governmental as a percent of GDP increased ~15%
  • ~5% decrease in Governmental employment.
  • Unemployment rose from 5.8 to 9.6%

The government was able to decrease employment drastically while increase spending.  This illustrates the point increased government spending does not necessarily lead to more government jobs.  It is possible that the spending increased jobs in the economy, yet overall unemployment still drastically increased.

Why is any of this significant?

Politicians collectively rant about job creation and reduction of unnecessary spending.  A simple and intuitive concept.

The application of this concept seems to be more difficult.  In the last decade we have seen increased governmental spending while governmental job gains have been disproportionately low. (Japan liquidity trap. Possibly a primer for other jobs related posts.  High spending / low jobs may be worse than low spending / low jobs).


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