38 Monthly Labor Review October 2004

Public Sector Employment Public Sector Employment

Since 1939, the public sector has increased

its share of nonfarm employment by 3

percentage points.1 Overall, 1 out of every

6 jobs in the nonfarm economy is now in government. The 2001 recession affected Federal, State,

and local governments in various ways. The largest

sector, local government, was influenced the least,

although a reduced rate of employment growth was

evident in both 2003 and the first half of 2004. State

government employment, the most cyclical in nature, peaked months before Federal Government,

but well after total private employment. The Federal

Government created a new agency in the aftermath

of the terrorist attacks on September 11, 2001, while

the U.S. Postal Service felt the brunt of the recession

and continued experiencing financial difficulties.

Growth in employment during and after the latest

recession contrasts sharply with employment

growth in the 1990–91 recession and subsequent

recovery.

Total private payroll employment peaked in

December 2000, but job growth in government

boosted total nonfarm employment. The tide turned,

however, when construction and information employment peaked in March 2001. Strength in

government and in a handful of private serviceproviding industries (financial activities, health

services, and leisure and hospitality) was not

enough. Coinciding with the U.S. business cycle

peak declared by the National Bureau of Economic

Research, total nonfarm employment peaked in

March 2001 and then declined until August 2003.2

The so-called jobless recovery of the 1990

Julie Hatch is an

economist in the

Office of Employment

and Unemployment

Statistics, Bureau of

Labor Statistics.

E-mail:

hatch.julie@bls.gov

Government employment surged during the 2001 recession,

only to fall victim to prolonged budget shortfalls

afterwards; compared with the 1990s recession

and aftermath, the 2001 recession itself had

less of an effect on government employment,

but the postrecessionary period was more difficult

Julie Hatch

Employment in the public sector:

two recessions’ impact on jobs

recession became the period of comparison. The

labor market continued to remain weak after the

recession ended in March 1991, even as other parts

of the economy gained momentum.3 In fact, nonfarm

employment remained relatively flat and did not

recover until early 1993. Despite the “jobless”

epithet, the labor market fared better following the

1990s recession than following the 2001 recession.

(See chart 1.) Payrolls grew by 876,000 jobs 21

months after the end of the 1990s recession,

compared with 1,082,000 jobs lost 21 months after

the 2001 recession ended. Employment slowly

started to recover in September 2003. Compared

with employment in private industry, government

employment fared better during the later recession,

but faltered after it ended.

In order to get a better understanding of how

the 2001 recession was different from the earlier

one, this article examines employment in each component of government, along with total nonfarm

employment, total private employment, and government employment as a whole. The latest recessionary period and recovery is compared with the

1990s recession and the subsequent recovery and

expansion. Each level of government works with

certain rules and agendas that can influence how

a recession affects employment. The Federal

Government does not work under a balancedbudget constraint, so it can incur deficits. Broad

issues such as national security, infrastructure,

international relations, and social welfare are the

Federal Government’s primary concern. State

governments represent the agendas of the 50
Monthly Labor Review October 2004 39

States and the District of Columbia. By law, States must have a

balanced budget each fiscal year. Local governments, which

include those of cities and counties, are often in charge of

implementing directives issued from Federal and State governments. Like State governments, localities also must balance the

budget each fiscal year.

Government

During the 2001 recession, government gained nearly 400,000

jobs, a sharp contrast to the 72,000 jobs lost during the 1990s

recession. (See table 1.) However, the job losses during the

earlier recession were due mostly to the laying off of intermittent decennial census enumerators and not economic

changes in the industry. Excluding Census effects, government employment continued to grow during the 1990s recession and subsequent recovery.4

 The growth came from

State and local payrolls. (See chart 2.) In 1993, the Federal

Government began to reduce its civilian employment, while

other industries added jobs. The only sector besides State

and local government to gain jobs at such a rapid pace

throughout both recessions was private education and health

services.

Even though government employment continued to grow during

the 2001 recession, the momentum gained during the 1990s boom

began to wear off. The public sector continued to add jobs, but at a

reduced pace, until employment peaked in February 2003. Government reduced payrolls by 97,000 between the peak and June 2004,

reflecting job losses in Federal Government.

Federal Government. Opposing employment trends in

Federal Government resulted in flatness during the 2001

recession. Small employment declines in the U.S. Postal

Service offset small gains elsewhere in the Federal sector.

Excluding the Postal Service, Federal Government gained an

average 2,000 jobs per month during the recession. In 2002,

the hiring of Transportation Security Administration workers

outweighed job losses associated with the Postal Service.

Federal employment peaked in March 2003 and then declined

by 73,000 over the next 15 months.

The terrorist attack on September 11, 2001, affected life in

the Nation in profound ways. The U.S. Government’s response

included the formation of the Department of Homeland

Security, which combined a multitude of existing Federal

agencies with a new agency, the Transportation Security

Administration (TSA).5 The mission of the TSA is to protect

U.S. transportation systems. Initially, the main mission of the

agency was overseeing the federalization of airport security.

Over the course of 2002, the TSA went from an agency with 13

employees to one with 64,000, most of whom were responsible

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

9 5

100

105

110

115

120

125

130

9 5

100

105

110

115

120

125

130

Chart 1. Employees on total private and government payrolls, 1990–2004

Index

1989 = 100

Government

Total private

Index

1989 = 100

NOTE: Shaded areas denote recessions.
40 Monthly Labor Review October 2004

Public Sector Employment

for passenger and baggage screening.6 As a result, nonpostal

Federal employment increased by 76,000 that year, but job

losses started in 2003. (See table 2.) A year after reaching a

peak in March 2003, the Federal Government, excluding the

Postal Service, lost about 50,000 jobs.

The most recent decline in employment follows the postrecession pattern established during the decade of the 1990s,

when Federal Government employment decreased by 11.5

percent. The end of the Cold War ushered in a new era, and

between 1991 and 2000, the Department of Defense cut about

200,000 civilian jobs from its payroll. (See table 3.) The manufacturing portion of defense, shipbuilding and repairing, followed

suit. Between 1991 and 1995, shipbuilding shed almost two-thirds

of its workers, and employment flattened out during the last half

of the decade.

Excluding the Postal Service, Department of Defense, hospitals, and shipbuilding, the industry titled “other Federal

Government” lost jobs during the 1990s due to structural

changes. Part of the decline may have been defense related, as

establishments owned by the Department of Defense, such as

military base commissionaires, are classified into that residual

category.7

 Equally noteworthy was the effort to reduce and

outsource large portions of Federal Government operations

throughout the 1990s.8

 As a result, “other Federal Government”

lost nearly 200,000 jobs during the period.

In sharp contrast, Postal Service employment behaved in a

more cyclical manner. (See chart 3.) The U.S. Postal Service

faced difficult problems during fiscal year 1991 as overall mail

volume declined for the first time in 15 years. Fiscal year 1992

was not much better, with mail volume barely increasing.9

Employment was adversely affected by the drop in mail volume,

and after declining for several years, it reached a trough in

November 1992. As demand for postal services grew, the agency

expanded its workforce; however, productivity gains in the latter

half of the decade led to slower growth and, eventually, small

workforce reductions that continued into the new decade.

Overall, the Postal Service had a net gain of 78,000 jobs throughout the 1990s.

Many factors converged to keep employment in the Postal

Service on its downward trend. The events of September 11 had

an impact on mail delivery in the short term as the Federal

Aviation Administration suspended commercial aircraft flights,

forcing the Postal Service to switch the delivery of mail from air

to surface transportation.10 While the terrorist attacks and later

concerns regarding the mailing of biological agents altered the

normal day-to-day operations of the Postal Service, they did

not influence the trend of small employment declines through

attrition. The agency’s finances were affected by the lackluster

economy as mail volume fell. Even though the Postal Rate

Commission’s recommendation of a 3-cent increase for a firstclass stamp was approved and went into effect on June 30, 2002,

job losses did not abate.11 The Postal Service also continued its

quest for efficient automation in its mail-sorting plants.

Technology, too, plays a role in communication. E-mail is

Employment in selected industries during the 1990 and 2001 recessions, seasonally adjusted

 Total nonfarm .................. 109,773 108,542 –1,231 –1.1 132,507 130,871 –1,636 –1.2

 Total private ...................... 91,213 90,054 –1,159 –1.3 111,564 109,535 –2,029 –1.8

Construction ............................. 5,274 4,881 –393 –7.5 6,864 6,782 –82 –1.2

Manufacturing ........................... 17,704 17,141 –563 –3.2 16,931 15,821 –1,110 –6.6

Financial activities .................... 6,628 6,602 –26 –.4 7,798 7,844 46 .6

Professional and business

services ................................. 10,899 10,705 –194 –1.8 16,764 16,098 –666 –4.0

 Education and health

services ................................. 11,000 11,381 381 3.5 15,465 15,869 404 2.6

Government .............................. 18,560 18,488 –72 –.4 20,943 21,336 393 1.9

 Federal ................................... 3,274 3,095 –179 –5.5 2,754 2,756 2 .1

 Federal government, except

 U.S. Postal Service ........ 2,448 2,277 –171 –7.0 1,876 1,893 17 .9

 U.S. Postal Service ............ 826 818 –8 –1.0 878 864 –14 –1.6

 State ...................................... 4,320 4,359 39 .9 4,851 4,977 126 2.6

 State government education 1,732 1,761 29 1.7 2,061 2,174 113 5.5

 State government, ex-

 cluding education ............. 2,588 2,598 10 .4 2,790 2,803 13 .5

 Local ...................................... 10,966 11,034 68 .6 13,338 13,603 265 2.0

 Local government education 5,919 5,971 52 .9 7,430 7,561 131 1.8

 Local government, excluding

 education ......................... 5,047 5,064 17 .3 5,908 6,042 134 2.3

 1991 recession 2001 recession

Percent

change

Percent

change

March

1991

November

2001

March

2001

July

1990

Industry

Table 1.

[In thousands]

Change Change
Monthly Labor Review October 2004 41

not the only alternative to conventional mail service that is

chipping away at the Postal Service’s traditional costumer base:

an estimated 35 million people now pay their bills online, further

reducing the need to utilize the U.S. mail system.12 In fact, other

Federal agencies have actively encouraged electronic correspondence. The Internal Revenue Service, for example, has

vigorously promoted its E-filing system to taxpayers, and 12

percent more returns were filed through E-file in 2004 than in

2003.13 As e-commerce has expanded across the U.S. economy,

employment in the Postal Service has declined. On average,

2,000 jobs per month have been lost since April 1999.

State government. Not only did employment in State government

continue to grow during the latest recession, but it did so at a faster

pace: from December 1999 until March 2001, States added 6,000 jobs

to payrolls each month, but during the recession, they added 16,000

jobs per month. Education accounted for 90 percent of State

employment growth during the recession, similar to the 70 percent

that it fueled from 1997 through the end of the decade. During that

period, enrollment in public degree-granting institutions increased

after several years of declines.14

Employment in State government, like that of the Postal

Service, is more cyclical in nature. State government’s revenue

growth tends to lag the national economic cycles by several

months, due to delays in tax collections and withholdings. In

fiscal year 1991, monetary shortfalls forced 28 States to cut

budgets, and even following the official end of the recession in

March 1991, 35 States cut their fiscal-year 1992 budgets after

they had been passed.15 Similarly, State employment trends

lagged the overall national employment cycle. For example, total

nonfarm employment reached a trough in May 1991, whereas

State government employment did not slow down significantly

until the third quarter of 1991, when 41,000 jobs were lost. The

lag was even more pronounced during the most recent downturn:

State government employment peaked 17 months after total

nonfarm employment, and 80,000 State jobs were lost during the

next 11 months.

Due mainly to strength in education, State Government

employment continued to grow for several months after the 2001

recession ended. There are several reasons that State education

employment grew so fast during that recession. First, colleges

and universities still had a substantial amount of money from

donations and endowments that resulted from capital gains

related to the stock market. Second, people have a tendency to

turn to education instead of entering the labor market when

hiring is sluggish. Finally, another temporary boom to the

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

8 0

9 0

100

110

120

130

140

8 0

9 0

100

110

120

130

140

Chart 2. Employees on Federal, State, and local government payrolls, 1990–2004

Index

1989 = 100

State

Local

Index

1989 = 100

NOTE: Shaded areas denote recessions.

Federal
42 Monthly Labor Review October 2004

Public Sector Employment

industry was the fact that aid received from States was based on

budgets passed before the recession.

The weakening economy eventually caught up with State

colleges and universities. State schools receive fiscal assistance

from a variety of sources that were affected by the lackluster

economy. School endowments shrank as the stock market lost

ground. Donors who were once willing to give generous amounts

either withdrew their donations from higher education or limited

them to lower amounts.16 Even as fundraising became more

difficult for colleges and universities, State legislatures voted to

reduce aid; funding for higher education is usually one of the

first budget items cut when the economy turns downward.17 In

response, State colleges and universities raised tuition to make

up some of the difference. Several State schools raised tuition in

mid-2002 for the spring semester, something that had not

happened since the early 1990s.18 During the 2003–04 school

year, 49 States increased tuition after several of them already

had done so the previous year.19 Schools also used several other

measures to make ends meet, such as limiting or curtailing

enrollment, adding more students per class, reducing course

options, cutting back on library hours and services, and accepting more out-of-State students, who pay higher tuition rates

than in-State students.20

During all this time, employment in State education responded

to the outside stimulus. Even though the recession ended during

the 2001–02 school year, education employment continued to

grow at a healthy pace, as it did during the 1990s recession.

However, when colleges and universities started back up in the

fall of 2002, they did so with 35,000 fewer jobs (seasonally

adjusted).21 When the school year came to a close in July 2003,

employment was little changed from the September level. It

appears that the measures taken by the public colleges and

universities to strengthen their financial pictures shored up

employment. The June 2004 employment level was about equal

to that of June 2002. In contrast, after the 1990 recession,

education employment continued to grow until March 1995,

when it declined for 2 years and 38,300 jobs were lost. This middecade slump was felt elsewhere in State government also.

Employment in State government, excluding education, responded to the 2001 recession the fastest of any government

sector. The recession did not affect State tax collections immediately.

Changes in income are usually felt at least 6 months before

personal and corporate taxes are collected. In addition, nonwithholding income tax revenues, which result from items such as capital

gains, are collected by States on a lagged basis.22 The faltering

economy did eventually have an impact on State tax revenues.

Adjusted for the effects of legislation and inflation, revenues

collected during the third quarter of 2001 declined by 4.6 percent,

compared with revenues collected the year before. A similar

decline was evident in the first quarter of 1991, when the yearover-year change in quarterly State tax revenue was 5.0 percent.23

Employment in State government, excluding education, was

 not immediately affected by the 2001 recession. Initially, States

relied on several standard budget adjustment tools, such as

Employment in selected industries, December 2001 to June 2004, seasonally adjusted

 Total nonfarm .................. 130,659 130,096 130,035 131,258 –563 –0.4 –61 0.0 1,223

 Total private .................... 109,312 108,501 108,491 109,730 –811 –.7 –10 .0 1,239

 Construction ............................ 6,787 6,695 6,774 6,911 –92 –1.4 79 1.2 137

 Manufacturing .......................... 15,702 14,899 14,324 14,393 –803 –5.1 –575 –3.9 69

 Financial activities ................... 7,833 7,904 7,981 8,049 71 .9 77 1.0 68

 Professional and business

services ............................... 16,087 15,881 16,159 16,457 –206 –1.3 278 1.8 298

 Education and health services.. 15,920 16,401 16,731 16,897 481 3.0 330 2.0 166

 Government ............................. 21,347 21,595 21,544 21,528 248 1.2 -51 –.2 –16

 Federal .................................. 2,744 2,771 2,720 2,716 27 1.0 –51 –1.8 –4

 Federal Government, except

 U.S. Postal Service .......... 1,886 1,962 1,929 1,931 76 4.0 –33 –1.7 2

 U.S. Postal Service ............ 858 809 791 785 –49 –5.8 –17 –2.1 –6

 State ..................................... 4,992 5,026 5,027 5,004 34 .7 1 .0 –23

 State government education 2,186 2,250 2,286 2,258 63 2.9 36 1.6 –28

 State government, excluding

education .......................... 2,806 2,776 2,741 2,746 –30 –1.1 –35 –1.3 5

 Local ..................................... 13,611 13,798 13,797 13,808 187 1.4 –1 .0 11

 Local government education 7,577 7,696 7,687 7,695 118 1.6 –9 –.1 8

 Local government, excluding

education .......................... 6,033 6,103 6,110 6,113 70 1.2 7 .1 3

 Change

Number Percent June

2004

December

2003

December

2002

December Number Percent

2001

Industry

Table 2.

[In thousands]

2004

(number)

 Level

2002 2003
Monthly Labor Review October 2004 43

across-the-board cuts, rainy-day funds, and the reorganization

of programs to shore up their budgets and, therefore, employment.24 But these solutions were not enough to overcome

tax revenues that continued to fall. State noneducation

employment peaked in December 2001, a month after the

recession officially ended. Similarly, excluding education, State

employment had peaked 1 month before the 1991 recession

ended.

The current picture contrasts sharply with the 1990s

postrecession period. At the end of 1991, State employment,

excluding education, started to recover and continued to

grow, until peaking in January 1995. (See chart 4.) The 2001

recession affected this sector the fastest and hardest of any

government sector.25 Once the recession ended, the problems

for States only got worse. By the second quarter of 2004, employment had fallen to the levels of early 2000, although

employment had been relatively unchanged since July 2003.

The budget problems that became apparent in fiscal year

2001 eventually developed into the worst financial situation

in 60 years. Thirty-seven States cut their budgets by the

cumulative sums of $12.6 billion and $14.5 billion in fiscal

years 2002 and 2003, respectively. Additional methods used

to balance budgets included employee layoffs, early retirements, reduced aid for higher education and localities, and

other measures.26 Budgets had started to improve slightly by

the third quarter of 2003, coinciding with the improved labor

market picture.27 Even though fiscal conditions improved for

fiscal year 2004, they fell short of prerecession levels, as did

employment for the same period.

Local government. Like State government, local government

added jobs at a faster pace during the recession. In 2001, local

government employment grew by 2.9 percent, compared with an

average of 2.1 percent for the previous 5 years. During the

recession itself, localities gained 33,000 jobs per month, split

equally between the education and noneducation components.

Growth during the 1990s recession had not been as robust, but

strength in education allowed local government to expand

employment by 68,000.

Education continued to fuel job growth in local government

throughout the 1990s, with approximately 2 out of every 3 new

jobs created in education. Enrollment in public elementary and

secondary schools grew 14 percent from the fall of 1990 to the

fall of 1999.28 Local education is the largest component industry

Post-1990-recession employment in selected industries and annual rates of change, seasonally adjusted

[In thousands]

 Total nonfarm ................................................. 108,263 130,242 21,979 20.3

 Total private ................................................... 89,643 109,744 20,101 22.4

 Construction ........................................................... 4,662 6,679 2,017 43.3

 Manufacturing ......................................................... 16,958 17,278 320 1.9

 Financial activities .................................................. 6,524 7,671 1,147 17.6

 Professional and business services ...................... 10,743 16,292 5,549 51.7

 Education and health services ............................... 11,679 14,910 3,231 27.7

 Government ............................................................ 18,620 20,498 1,878 10.1

 Federal ................................................................ 3,127 2,768 –359 –11.5

 Federal, except U.S. Postal Service ................ 2,319 1,882 –437 –18.8

Federal ship building and repairing1 .............. 60 23 –37 –61.7

Federal hospitals1 ......................................... 235 219 –16 –6.8

Department of Defense1 ................................ 699 516 –183 –26.2

 U.S. Postal Service .......................................... 808 886 78 9.7

Other Federal government1 ........................... 1,314 1,122 –192 –14.6

 State ................................................................... 4,354 4,757 403 9.3

 State government education ............................ 1,774 2,018 244 13.8

 State government, excluding education .......... 2,580 2,739 159 6.2

State hospitals1 ............................................. 417 345 –72 –17.3

State government general administration1 .... 1,670 1,862 192 11.5

Other State government1 .............................. 474 515 41 8.6

 Local ................................................................... 11,139 12,972 1,833 16.5

 Local government education............................ 6,008 7,212 1,204 20.0

 Local government, excluding education .......... 5,132 5,760 628 12.2

Local government utilities1 ............................ 232 224 -8 –3.4

Local government transportation1 ................. 199 228 29 14.6

Local hospitals1 ............................................. 656 624 –32 –4.9

Local government general administration1 .... 3,281 3,756 475 14.5

Other local government1 ............................... 695 861 166 23.9

1 Data are not seasonally adjusted.

Fourth-quarter averages

1991 1999 Level Percent

Change

Table 3.

Industry
44 Monthly Labor Review October 2004

Public Sector Employment

Index

Chart 4. Employment in State government, excluding education, seasonally adjusted data,

indexed to the start of the recession

Index

2001 recession

1990 recession

Months relative to the start of recession

-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

9 6

9 7

9 8

9 9

100

101

102

103

104

9 6

9 7

9 8

9 9

100

101

102

103

104

– – ––––

Chart 3. Employees on Federal (except U.S. Postal Service) and U.S. Postal Service payrolls,

1990–2004, seasonally adjusted

Federal (except

USPS), in thousands

Federal,

except USPS

USPS

USPS, in

thousands

NOTE: Shaded areas denote recessions.

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04

1 ,6 5 0

1 ,8 0 0

1 ,9 5 0

2 ,1 0 0

2 ,2 5 0

2 ,4 0 0

2 ,5 5 0

2 ,7 0 0

600

700

800

900

1 ,0 0 0
Monthly Labor Review October 2004 45

within government (see chart 5) and typically adds a noteworthy

number of jobs each year.

Education was not the only growth industry in local government. More than half a million jobs were created in local

administration during the 1990s. The residual industry, other

local government, which includes components such as libraries,

recreation and park authorities, cemeteries, and housing

authorities, was the fastest-growing industry. Overall, local

government gained almost 2 million jobs during the decade.

The delayed impact of the 2001 recession on local government

resulted in job gains. Local governments have a wealth of

revenue sources, some more dependent on economic conditions

than others. Revenue sources such as sales and income taxes

and fees for services are more likely to be affected by both

positive and negative changes in economic activity. Property

tax, in contrast, weathers economic storms better, creating a

short-term safe harbor for localities.29 During the 2001 recession,

the healthy housing market raised the value of residential real

estate. Localities in turn reassessed properties, boosting their

property tax bases without actually raising tax rates. In addition,

cities receive funding from State governments. Because recessionary effects did not have an impact on State budgets

immediately, local governments were affected on a lagged basis.

be used as revenue for the next year or can be set aside in

anticipation of an upcoming economic downturn. According to

a survey administered by the National League of Cities, the

ending balance as a percentage of expenditures in 2001 was at

 Cities operate on balanced-budget requirements, so they

usually try to end the fiscal year with a surplus, which can then

Federal

government

(13)

Local government

education

(36)

State government

(23)

Local

government,

excluding

education

(28)

Chart 5. Percent of government employment,

2003

the highest point, 19.1 percent, since the series began in 1985.30

It is important to remember that many cities end their fiscal year

on June 30 or September 30. Thus, the financial impact of the

terrorist attacks on September 11, 2001, would likely be more

apparent in fiscal year 2002. The strength in the ending balances

is mirrored in the positive employment situation for local

government during 2001.

 The trickle-down effect slowed the impact of the recession

on local governments, but eventually, the weak economy took

its toll on budgets and payrolls. From 1977 to 2004, Federal aid to

cities declined from 15 percent to 5 percent of total city revenues.

In addition, aid from States was reduced $2.3 billion in fiscal year

2004 from fiscal year 2003, a sharp contrast to the past, when

downturns were marked by a slowing rate of revenue growth,

not an actual reduction in revenue.31 Localities took various

measures in response to reduced funding. For example,

according to the National League of Cities, nearly half of the 328

cities surveyed in 2003 increased fee rates, 30 percent reduced

city employment, 29 percent imposed new fees or charges on

services, 21 percent reduced actual levels of capital spending,

and 11 percent reduced city service levels.32 The deteriorating

fiscal conditions eventually affected employment. During

2002, half as many jobs were added in local government as

were added in 2001, and by 2003 growth had come to a

standstill.

Excluding education, growth in local employment slowed from

2.5 percent in 2001 to 0.1 percent in 2003. During the first half of

2004, employment was essentially unchanged. In addition to

budget woes, localities faced new challenges as a result of the

terrorist events of September 11. When the terrorism alert

becomes elevated, police and other security personnel are

stationed at crucial or vulnerable locations. According to the

U.S. Conference of Mayors, the total cost of Code Orange to all

localities combined is around $70 million per week.33 In response,

Congress added to the Department of Homeland Security

funding bill a provision to help fund first-responder programs.34

Another Federal mandate also challenged local governments.

The Federal role in education has been limited by the Tenth

Amendment to the U.S. Constitution, and most education policy

is decided at the State and local levels. However, on January 8,

2002, the No Child Left Behind Act of 2001 was signed into law.

The Act redefines the Federal role in primary education and is

grounded on four basic principles: stronger accountability for

results, increased flexibility and local control, expanded options

for parents, and an emphasis on teaching methods that have

been proven to work.35 Funding for the new law has become an
46 Monthly Labor Review October 2004

Public Sector Employment

important issue. According to a study performed by the National

Conference of State Legislatures, there was a shortfall of

almost $10 billion in fiscal year 2004 between the amount

Congress was authorized to give and the amount that was

appropriated.36 Besides the added costs of implementing the

Act, the States’ budget crises had a detrimental effect on

local education employment. From 1990 until 2001, local

education averaged an employment increase of 147,000 a year.

But during 2002, schools added 118,200 jobs, and by 2003,

growth in local education came to an abrupt halt. (See chart

6.) Local education employment has remained relatively flat

since the start of the 2003–04 academic year and has not been

this weak since the early 1980s, coincidentally with two recessionary periods.

GOVERNMENT EMPLOYMENT GREW DURING THE 2001

Notes

1

 Data on employment used in this article are from the Current

Employment Statistics (CES) program, which surveys 160,000 nonfarm

businesses representing about 400,000 establishments monthly. For

more information on the program’s concepts and methodology, see

BLS Handbook of Methods (Bureau of Labor Statistics, 1997). CES data

are available on the Internet at http://www.bls.gov/ces/. Data used in

this article are seasonally adjusted unless otherwise noted.

RECESSION, with most components performing much better than

in the 1990s recession. Several factors made the latest postrecession period different from any other. The terrorist attacks of

September 11 led to the creation of the TSA within the Federal

government, but, at the same time, strained the budgets of States

and localities. The worst State fiscal crisis in decades affected

not only State government employment, but local employment

as well. Unfunded Federal mandates for additional security and

education put further burdens on State and local governments.

Technological improvements in mail sorting and a shift in how

Americans communicate forced the U.S. Postal Service to reduce

employment. Offsetting higher costs of doing business and

reduced funding, the strong housing market boosted property

values and enabled localities to collect more property tax revenue

without raising rates.

2

 For information on recessions, recoveries, the National Bureau of

Economic Research Business Cycle Dating Committee, and related

topics, see http://www.nber.org/cycles/main.html.

3

 Gross domestic product grew 2.6 percent in the second quarter of

1991 and increased every quarter until the third quarter of 2000. The

U.S. Department of Commerce’s Bureau of Economic Analysis proChart 6. Employment in local government education, over-the-year change, 1990–2003,

seasonally adjusted

In thousands In thousands

6 1

142

118

126 129 123

159 163 169

230

123

219

118

– 9

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03

-50

0

5 0

100

150

200

250

-50

0

5 0

100

150

200

250

– –
Monthly Labor Review October 2004 47

duces estimates of gross domestic product; for more information,

visit the agency’s website at http://www.bea.gov/bea/dn/home/

gdp.htm.

4

 Intermittent decennial census workers are excluded from the analysis

because their large, infrequent buildup and subsequent layoff skews the

underlying employment trend. For more information about the 2000

Decennial Census and its impact on CES employment, see Laura Kelter,

“Counting the counters: effects of Census 2000 on employment,”

Monthly Labor Review, February 2000, pp. 24–29; on the Internet at

http://www.bls.gov/opub/mlr/2000/02/art2full.pdf.

5

 For more information on the Department of Homeland Security,

see www.dhs.gov.

6

 For more information on the Transportation Security

Administration, see www.tsa.gov.

7

 Department of Defense operations that operate under nonappropriated funding are excluded from the agency’s job numbers, but

are included in the “other Federal Government” category. Nonappropriated funds are funds generated by Department of Defense

military and civilian personnel and their dependents and are used to

augment funds appropriated by the Congress “to provide a comprehensive, morale-building welfare, religious, educational, and

recreational program designed to improve the well-being of military

and civilian personnel and their dependents“ (quote cited on the

Internet at http://usmilitary.about.com/library/glossary/n/

blglossary.htm).

8 The National Partnership for Reinventing Government,

formerly the Government Performance and Results Act, focused on

performance and funding in the Federal Government. According to

one source, “This effort has streamlined the Government work force,

eliminated obsolete programs and agencies, empowered its employees

to cut red tape, and used partnerships to get results” (FY2002 Economic Outlook, Highlights from FY 1994 to FY 2001, FY 2002

Baseline Projects, Office of Management and Budget, Executive

Office of the President of the United States, January 2001), available

on the Internet at http://w3.access.gpo.gov/usbudget/.

16 Greg Winter, “Charitable Giving Falls for First Time in Years,”

The New York Times, Oct. 27, 2003.

17 National Association of State Budget Officers, 2002 State expenditure report; on the Internet at www.nasbo.org.

18 Liz Sidoti, “Yikes! Mid-Year Tuition Hikes,” Jan. 8, 2002; on the

Internet at CBSNEWS.com.

19 “Tuition up in 49 states as schools, students struggle in tough

times,” USA Today, Aug. 25, 2003.

20 For more information about public colleges’ and universities’

decisions, see Shaun Bishop, “Cuts may force UC to accept more outof-State students,” The Daily Bruin Online, Sept. 26, 2003; Amy

Argetsinger, “Colleges’ Chief Suggests Enrollment Cap,” Washington

Post, June 11, 2003; and Mary Beth Marklein, “Colleges brace for

bigger classes and less bang for more bucks,” USA Today, Aug. 27,

2003.

21 State education unadjusted fall buildup begins in August and ends in

November.

22 National Association of State Budget Officers, Fact Sheet: Quick

Rebound?

23 Data are from Nelson A. Rockefeller Institute of Government

Revenue Report Database; on the Internet at http://rockinst.org.

24 National Association of State Budget Officers, Budget Shortfalls:

Strategies for Closing Spending and Revenue Gaps, 3d ed., December

2002.

25 Although U.S. Postal Service employment declined by 1.6 percent

during the recession, job losses were mostly the result of technological

improvements and not the recession.

26 National Association of State Budget Officers and the National

Governors Association, The Fiscal Survey of States: June 2003; on

the Internet at www.nasbo.org.

27 “State Tax Revenue Continues Slow Improvement,” The Rockefeller Institute State Fiscal News, vol. 4, no. 1.

28 Digest of Education Statistics 2002 (Department of Education,

National Center for Education Statistics, Nov. 24, 2003), Chapter 2,

“Primary and Secondary Education”; a copy of the report is available

on the Internet at http://nces.ed.gov/progams/digest/d02/ch_2.asp.

29 Chris Hoene, “History, voters not kind to property tax,” The

Weekly; posted on the Internet on May 14, 2001, at www.nlc.org.

30 Michael A. Pagano and Christopher Hoene, “Survey Summary: City

Fiscal Conditions Decline for First Time in a Decade”; on the Internet

at National League of Cities website, www.nlc.org.

31 Chris Hoene and Michael Pagano, “States Cut $2.3 Billion in Aid

to Cities and Towns”; on the Internet at the National League of Cites

website, www.nlc.org.

32 “Cities Cut Services, Increase Fees to Confront Worsening Fiscal

Squeeze,” press release, the National League of Cities, Nov. 30, 2003.

33 Richard S. Dunham, ed., “America’s Cities are Seeing Red over

Code Orange,” Business Week, June 9, 2003, p. 55.

34 For more information, visit the Department of Homeland Security

website at www.dhs.gov.

35 For more information, visit the Department of Education website

at www.ed.gov.

36 National Conference of State Legislatures, Task Force Formed to

Examine Federal No Child Left Behind Act, Mar.30, 2004; on the

internet at www.ncsl.org.

9

 The Federal Government’s fiscal year runs from October 1 to

September 31. (See “History of the U.S. Postal Service”; on the

Internet at http://www.usps.com/history/his3_5.htm#CHANGE.

10 United States Postal Service Annual Report 2001; available on

the Internet at http://www.usps.com/history/anrpt01/.

11 “Sluggish Economy and Reduced Mail Volumes Continue to

Impact Postal Service Finances,” Postal News, Apr. 9, 2002, release

no. 02–024; on the Internet at www.usps.gov.

12 Jefferson Graham, “The check is not in the mail,” USA Today,

Mar. 25, 2004; on the Internet at http://www.usatoday.com/

money/perfi/general/2004-03-25-billpay_x.htm.

13 For more information, visit the website www.irs.gov.

14 Digest of Education Statistics 2002 (U.S. Department of

Education, National Center for Education Statistics, Nov. 24, 2003),

Chapter 3, “Postsecondary Education.” A copy of the report is

available on the Internet at http://nces.ed.gov/programs/digest/

d02/ch_3.asp.

15 National Association of State Budget Officers, Fact Sheet: Quick

Rebound? State Fiscal Recovery Could Be Gradual, Lag National

Economy 12–18 Months, Mar. 12, 2002. Forty-six states begin their

fiscal years in July and end them in June. The exceptions are Alabama

and Michigan, with an October-to-September fiscal year; New York,

with an April-to-March fiscal year; and Texas, with a September-toAugust fiscal year. For more information, visit the association’s

website, www.nasbo.org.