Monday, October 22, 2012

Hire a Multiplier

The New York Times editorial this morning, “The Myth of Job Creation,” attempts to correct the misconception, voiced by Mitt Romney and quoted there, that “Government does not create jobs.” My, Mitt. And you are supposed to be a numbers-crunching analyst? Government does too create jobs—and the NYT makes the case for the obvious.

I thought I’d look back to 1939 and see what roles government jobs play in total employment. Government as here defined includes the federal, state, and local. In the case of the federal, it includes postal employees as well as bureaucrats. At the state level it includes state-run educational schools. At the local it includes public schools. All education, except the private, is included.

In this 74-year period, government has accounted for, on average 16 percent of all employment. The lowest point came in 1947 (12.5%), the highest in 1975 (19.2%); government employment last month was close to the average (16.5%).

Now as all good wonks and analysts should know, job creation, whether by government or private industry, has a multiplier effect. This means that adding employees has secondary costs. New people need furniture, computers, sometimes vehicles, tools, occasionally uniforms. They consume supplies that would not otherwise be consumed. The hiring of new employees, consequently, increases demand. And in meeting it, new jobs are created (or preserved). The reverse, of course, is also true. Layoffs are bigger, in total effect, than the number of jobs erased.

How big is this multiplier? The NYT points at the Economics Research Institute to justify what I viewed as an exaggerated multiplier effect. Looking at the source, however, I saw a lower number for the actual new-job-related multiplier. It excludes some of the tertiary effects the NYT includes. (Journalists are not visceral analysts, alas.) EPI projects a 1.67 multiplier for state-and-local employment. This means that 100 jobs created at the state-and-local level translate to 67 jobs created elsewhere. It seems safe enough to assume that a similar multiplier applies to federal workers as well. That would mean that the 22 million government jobs in place last September accounted for an additional 14.7 million jobs in the economy.

Now I’ve never heard of any private company generating public sector jobs—unless it does so by crimes and misdemeanors the prosecution of which (we pray and hope it really happens) will generate jobs for public prosecutors and the clerks who help them, police and other investigators, judges and wig-makers, and even (but this is to hope too much), wardens and prison guards.

1 comment:

  1. Well put, and a delightful piece for Jobs USA,... one day.