Although the private sector economy is showing signs of life, a recent story in the New York times shows that public sector employment continues to decline. Ohio actually has one of the lowest unemployment rates in the country but it is the private sector that is adding jobs.
Public employers state-wide continue to lay off employees, leave job vacancies unfilled, and demand concessions at the bargaining table. There are two related forces causing this.
First, the Wall Street crash from five years ago caused massive job losses in the private sector. Unemployed people do not pay municipal income tax and so city budgets get squeezed. Similarly, the unemployed have less money to spend so sales tax receipts take a hit that impacts counties. Adding further fuel to the fire is the fact foreclosed homeowners don’t pay property taxes. These are all factors largely beyond the control of state and local governments.
The second factor holding down employment and wage growth, however, is entirely the doing of Governor Kasich and his Republican lackeys in Columbus. When he took office he vowed to break the backs of the public sector unions. Senate Bill 5 was one such attempt but it failed. The real damage, however, has been reduced state revenue going to the local governments.
In one moderate-size city I’m familiar with they received over $650,000 is state revenue sharing in 2011. In 2013 they will receive only $100,000. That equates to about six or more full-time jobs.
The slash to local government funding was a “two-fer” for Kasich. It allowed the state to balance its budget by dumping the hard decisions on the cities and counties. And it also put a choke hold on the public sector unions as membership falls. Ultimately, the greatest pain is felt by the little guys who lose their jobs. But it is also being felt by those still working because it is near impossible to bargain for higher wages when the increases could only be funded by further layoffs. The chart below taken from SERB’s website dramatically illustrates the impact.
State Employment Relations Board
Annual Wage Settlement Report
Wage Settlement Breakdown (2002-2011)
The data is not yet compiled for 2012 but if the average settlement is higher than it was in 2011 I will be surprised.
Let us hope that we have hit bottom and that in 2013 we’ll start climbing out of this prolonged recession. But even once local revenues start to increase, I foresee more years of downward pressure on wages and benefits. Most employers will want to use new revenues to make overdue capital purchases and neglected infrastructure improvements. Others will want to hire more employees rather than give wage increase to current staff.