The Shrinking Public Sector

Matt Yglesias makes an important observation about the dismal recent labor market statistics:

Looks like we had 17,000 thousand new private sector jobs in August, which were 100 percent offset by 17,000 lost jobs in the public sector. The striking zero result should galvanize minds, but it’s worth noting that this has been the trend all year. The public sector has been steadily shrinking. According to the conservative theory of the economy, when the public sector shrinks that should super-charge the private sector. What’s happened in the real world has been that public sector shrinkage has simply been paired with anemic private sector growth.

Our graph shows total government employment since January 2007 as well as employment by state and local governments over the same period. Total government employment has actually been declining since the month Barack Obama became President. While Federal employment has risen very slightly on net during this period (it too has been falling of late), employment by state and local governments has declined by 650,000 over this same period. As far as the conservative theory that Matt alludes to, alas private employment has not risen to offset this Herbert Hoover fiscal policy.