How austerity cost the US 2.2 million jobs

A study points out that slashed government spurred on by flawed policy logic has the economy in far worse shape than it should be.

By Jason Notte May 7, 2013 3:52PM
Business hand receiving a pink slip © Tom Grill, PhotographerSo what if austerity was rooted in a study with a flawed Excel spreadsheet that, despite vigorous defense from its authors, has become a "Colbert Report" punchline? No harm done, right?

Only if your margin of error for "harm" is 2 million jobs or so.

A study from The Brookings Institution finds that the austerity measures touted by Harvard professors Carmen Reinhart and Kenneth Rogoff cost the U.S. economy 2.2 million jobs at a time when it could least afford to lose them. Unlike their austerity-minded counterparts, however, Michael Greenstone and Adam Looney at Brookings actually show their work.

In the 46 months since the recession ended, state, local and federal governments have cut about 500,000 jobs. In every other U.S. recession since 1970, however, the government hired approximately 1.7 million people, on average. Put those two bits of information together, and the U.S. is 2.2 million jobs shy of where it should be.

If that doesn't seem like a whole lot, consider the bigger picture. According to the Bureau of Labor Statistics, the entire American workforce adds up to little more than 155.2 million people. Add 2.2 million jobs to that pool and the unemployment rate slides from 7.5% to 6.1%. That's just below the 6.5% figure the Federal Reserve is trying to hit with its quantitative easing bond-buying programs in an attempt to jolt the economy. That's noteworthy only because, just last week, the Fed blamed austerity for keeping the economy in neutral.

Those 2.2 million jobs would also put the U.S. near the peak employment it hit in January 2008 just before the recession. We're roughly 2.6 million jobs shy of that now, but Calculated Risk notes that the job growth rate under austerity measures is the slowest since World War II and won't return to that peak employment figure until 2020 at the earliest.

But wait: Shouldn't the U.S. at least seek a private-sector solution before going on a Big Government hiring spree? Well, we're trying that right now, and, while businesses aren't wholesale firing people anymore, they're not hiring a whole lot of folks, either. That's creating a huge rift between jobless claims and actual unemployment numbers that The Huffington Post says is leaving the economy 4 million jobs short of being fully functional and sustaining a 5% unemployment rate.

The problem, again, is austerity. Nobody, from government to the average consumer, is spending with any regularity, which is forcing companies to shift their focus from generating U.S. production to prodding U.S. consumption. As a result, roughly 65% of the jobs regained since the recession have been of the low-wage variety, though nearly 60% of all jobs lost during the slump paid middle-income wages or better, according to the National Employment Law Project.

It's no surprise, then, that the most common job in America since the recession is in retail sales. Those workers number 4.3 million (greater than the population of Kentucky) and make only $25,000 a year, well below the more than $45,000 national median wage.

If you're waiting for the newfound holes in austerity logic to give way to government hiring, good luck with that. The Brookings report didn't even factor in the 750,000 jobs that will be lost as a result of the recent sequestration cuts. The belt is tightening, but unfortunately it's around the nation's neck.

More on moneyNOW

May 7, 2013 4:15PM

What a joke this report is. If we had not laid off any government workers and hired more of them then we would not have an issue. Of course our debt and taxes would be higher but who cares? People would be spending more money and our unemployment rate would be lower! Using this logic, then lets get the unemployment rate down to 2% by hiring more government workers and everything would be even better.

  Of course we eventually would have to pick up that can that we continue to kick down the road.

 Inflation and debt payments -- that is for the cloudy future and someone else's problem.

Of course, our politicians are focused on everything but improving the economy and growing good jobs-- Syria, immigration, abortion, guns, bancrupt green jobs, etc.

May 7, 2013 4:16PM
This is an idiotic article. Who do you think would pay the extra 2.2 million government employees? And even with the "lack" of 2.2 million government employees, we still have huge deficits at almost every level of government.  Why not just pay 2.2 million people to do nothing? Oh wait...
May 7, 2013 4:22PM
When you reduce government costs that is consumer money that you don't have to pay in taxes. There by increasing the purchasing power of the consumer. In my state local taxes are about 5% of per capita income state taxes are about 25% and federal 30%. If the government were to cut federal costs by 33% that would increase consumer purchasing power by 10%. If we could cut state taxes by 33% that is another 8%. How would you like an 18% increase in purchasing power. What would that do for the economy?
May 7, 2013 4:20PM
This Government has cost far far more than 2.2 million jobs Jason Notte!
May 7, 2013 4:22PM
Pump a little more cash to people who hate us and see how much more you can cost!
May 7, 2013 4:38PM
This article is based on voodoo economics and "fuzzy math" to say the least. It's obvious from the flawed logic within this article that Jason was not a business major in college and dare I say, does not have an MBA.
May 7, 2013 4:48PM
I met a FBI agent  who was also on vacation in Maui. We were enjoying the weather talking out by the pool when this agent told me a story how on Christmas eve back a few years when Gore was vp
there were several agents stationed out in front of the Gores mansion in the cold when there a flash light was seen coming down the drive way. Sense it was almost  9.00 christmas eve the agents thought it was the vp or his wife coming out to wish the men and women agents merry christmas         instead the vp told the agents to stay out of sight His family  was tired of seeing agents mulling around in front of there house. These are the same men and women who are trained to take a bullet for this thankful family 
May 7, 2013 5:22PM
Lies...lies...lies...the govt. wastes one third of every tax dollar we send, through waste and fraud.  If we can't cut 2 cents out of every dollar our bloated govt spends....then we ARE truly hopeless.
May 7, 2013 5:23PM
Obama's "Jobs" Program.... Push people to go to college, even giving them government loans, so they can get out and MAYBE find a poverty level job, so they can go on welfare, and default on their loans at the taxpayers expense.  Brilliant!   Seems the "shine" is wearing off the 4 1/2 year old penny!
May 7, 2013 5:08PM
or it save millions of jobs by make people feel that we getting house in order so not dump the dollar like mad. austerity prevents run on the dallor.  there no such thing as free lunch is law of economics. we need more manufacturing. healthy economy has manufacturing as 20 percent of gdp or more 

May 7, 2013 5:45PM
I commented on this article's author Notte before, never favorably, but it is incomprehensible to me how he can keep a job. Seriously, regardless of your political or philosophical or intellectual orientation, this guy's thought processes and writings are a disgrace. Do SOMETHING about it, MSN!
May 7, 2013 7:29PM
Every government job lost creates two in the private sector...  and the reverse is true too...  Every government job created destroys 2 in the private sector...  Where do you think government gets the money to hire people?   They remove it from the private economy, thus shrinking it FIRST...
May 7, 2013 5:54PM
It looks like the Brookings Institution is actually a mental institution for the mentally challenged.
May 7, 2013 7:15PM
Who knew?  I have suffered for years without a Ferrari.  I just needed to buy one on my credit card!
May 7, 2013 7:44PM
The defecit and debt, as it is at current levels, indicates not nearly enough government jobs have gone away.
May 7, 2013 5:18PM

Just look who wrote this article...the CROOKings Institution... 

From Wikipedia:  the media most frequently describe CROOKings as "liberal-centrist"


More BlowbamaMath to muddy the waters. Incompetent DOUCHEBAG PresiDEBT.



May 8, 2013 7:51AM
Too bad. It's not the government's job to supply work.
May 8, 2013 12:44PM

Truly a silly way to define 'austerity'--any government's budget goes DOWN? No, didn't think so. Did any of your taxes go down? No, didn't think so. Their only definition of austerity is that goverment did NOT hire 1.7 million people it normally does when we are coming out of a recession. What a truly asinine way to define austerity! I agree iwth Mr. Franks here--there is never a downside presented for borrowing and spending so much; why not? What do you think the cost in jobs is of the federal government paying interest (much less attacking the principal!) on the $15trillion it has borrowed over the years? I would like these morons who right this nonsense to tell us THAT number.

May 7, 2013 6:59PM

Well that means that 2.2 million people are entitled to something - let's guess, they all live in the inner cities.  mmm, mmm, mmm!

May 7, 2013 7:50PM
Maybe a study outlining the number of jobs lost due to excessive regulation is in order. Then we can add jobs lost and not created due to Obamacare. Those numbers should be hair raising, or pulling.
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