Great Recession declines and recovery

Despite experiencing the longest period of economic expansion in U.S. history from 2009 to 2019, the nation’s economic recovery from the Great Recession was one of the weakest on record. The Great Recession saw massive employment losses—8.7 million jobs were lost in the U.S. from December 2007 to February 2010, representing 6.2% of the country’s nonfarm employment. Nonfarm employment in the U.S. did not recover pre-recession levels until May 2014; private sector employment recovered in March 2014.

The recession was especially severe in California; California’s unemployment rate surpassed the national rate, peaking at 12.3% several months after the national peak of 10% (Figure 1). The depth of California’s downturn has been detailed by many researchers (see Center on Wage and Employment Dynamics briefs of 2010, 2012, 2016, and 2018).[1]

Although the Great Recession was followed by the longest period of economic expansion on record, that recovery is widely regarded to be incomplete, characterized by both widening inequality and very slow growth in real incomes. Several measures illustrate the incomplete national and state economic recovery:

• The employment-to-population ratio (the percentage of the working-age population employed) had still not recovered by 2019.[2]
• Inflation-adjusted wages and household incomes stagnated in California and nationally. This was particularly true for the middle of the wage distribution, as the bottom wage earners were boosted by state and local increases in the minimum wage.[3] Real wage growth from 2000-2007—economic boom times—failed to keep pace with rising productivity.[4] Wage trends from 2009-2019, the longest period of economic growth in U.S. history, followed a similar pattern. The median California household saw an income decline of 13.5% from 2006-2011.
• Unemployment rates did not fall to 2007 levels until 2017—8 years after the official end of the recession.[5]
• Long-term unemployment rates were markedly higher than in previous downturns.[6]
• Underemployment—workers who are discouraged or marginally attached to the labor market, as measured by BLS—did not recover nationally until after 2017, and California’s rate remained higher than the national average, nearly 10% in 2017.[7]
• Service-sector jobs in particular, held by a growing share of U.S. workers, are increasingly characterized by unstable scheduling, uncertain hours, and income volatility.[8]

California, like the nation, entered the current economic recession with greater inequality, widespread economic precarity, and a significant share of workers underemployed. The official unemployment rate masked lower labor force participation and workers holding two or more jobs to make ends meet. The state’s public sector was also weakened, having failed to match the private sector’s pace of recovery.

Public sector job loss and recovery

The private sector and public sector followed different trajectories in the scale and timing of declines and recovery. Beginning in December 2007, private sector employment fell significantly nationwide, before rebounding in early June 2009 (California started losing jobs in July 2007, a few months earlier). State and local government employment declined more slowly, with losses accelerating in 2011 and 2012 as the economic impacts of the recession affected revenues. Federal employment spiked in 2010 due to hiring for the 2010 Census.

Public sector employment declined more slowly than the private sector in the early months of the recession, but significantly lagged the private sector in recovery. Total public sector employment in the United States—federal, state, and local—did not recover its 2008 peak until 2019 (Figure 2). State and local government employment only reached pre-recession levels in 2016 (state) and 2019 (local). Over that same time period, the U.S. population grew from 301.2 million in 2007 to 328.2 million in 2019, an increase of nearly nine percent, and private sector employment grew 12%. It is clear that public sector employment has not kept pace with population growth, and that both California and the nation entered the current downturn with a smaller public sector relative to population than we had in 2007 (Figures 2 and 3).

In California, public sector employment recovered more quickly than nationally (Figure 3). State government employment surpassed pre-recession levels in February 2014; local government in July 2017. State government employment recovered more quickly and more fully in California than nationally, significantly exceeding job recovery in local and federal employment.

Nationally, state and local government employment peaked in July 2008 and hit its lowest point in July 2013; over those five years, nearly 750,000 state and local government employees lost their jobs. Before the COVID-19 downturn began, the nation’s state and local government employment was at 19,878,000 workers, less than 1% higher than in July 2008. From February to September 2020 1,203,000 state and local government workers lost their jobs, plummeting state and local employment to 18,675,000, a level not seen since 2004.

California’s pre-Great Recession state and local employment also peaked in July 2008 (2,277,700 workers) but hit its lowest point earlier: January 2013 (2,114,200 workers)—a net loss of 163,500 jobs. Before the COVID-19 downturn, California’s state and local employment was at a new high of 2,381,300 in March 2020, dropping to 2,196,600 in September 2020.

Despite California’s stronger recovery in government employment, the state’s public sector is a significantly smaller part of the economy than before 2008. From 2007-2019, California’s population grew by more than nine percent—adding more than three million residents (Figure 4a). In California, state and local governments employ about one in seven Californians (outside farming)—this share has dropped significantly since the 2007-09 recession, from a high of 15.5% in July 2009 to a low of 13.5% in July 2019, where it has hovered since (Figure 4b).

Jobs in the public sector

More than half of state and local workers are in education: 41% in local education (which is nearly all K-12, with a small amount of community college employment) and 12% in state education (state university and community college systems) (Figure 5). Local government employs far more people—65% of government workers—than the state (23%) or federal (13%) governments. After 2008, there was little change in the distribution among the public sector categories used by the Bureau of Labor Statistics—an increase in state government education (higher education) and both state and local hospitals, but a slight decline in local government education employment.

Like the U.S., more than half of California’s state and local workers are in education (Figure 6). California also saw local education employment decline relative to other government sectors after 2008. Unlike the nation, however, California’s K-12 enrollment has also been declining.

From 2008 to 2020, California’s state education employment (which is less than 10% of state and local employment) grew significantly, and never dipped below pre-recession levels (Figure 7). This growth was made possible by significant increases in student fees and other non-state revenues for higher education systems. When education employment is excluded, state employment recovered much more slowly, paralleling local governments’ slow recovery.

The stagnation of the public sector after 2007 is in marked contrast to the relatively strong recovery of state and local employment after 2000 (Figure 8). In that recession and recovery, local education employment and state non-education employment dipped briefly before recovering. Other local employment, and state education employment, never dipped below pre-downturn levels.

Local education

Local education employment declined only slightly in California from 2007-2019, at a time when statewide K-12 enrollment stagnated. These trends mask significant education job losses early in the recovery, however, when thousands of teachers were laid off or given layoff notices (Figure 9).

In 2007-08, California employed 300,594 teachers (FTE). By 2010-11, that number had dropped to 268,470 as more than 30,000 teachers lost their jobs. By 2017-18, the number of FTE teachers remained below the pre-recession peak: 295,466 (California Department of Education data). Over that same time period, California’s K-12 enrollment dropped slightly, but the ratio of FTE teachers to students remained higher than before the recession. Research from this time period also illustrated the damage that layoff notices do even when a majority of those teachers are ultimately retained, by creating structural churn that drives teachers away from the workforce.[9] During a time of deepening shortages in the pipeline of teachers, this churn could have significant impacts on the recruitment of qualified teachers in future years.[10]

State education

California’s state education employment increased significantly from 2007 to 2019—UC’s non-student employment increased from 122,230 in 2007 to 159,746 in 2019 (31%) (UCOP data).[11] Both the University of California and California State University systems saw state funding cuts, but also implemented multiple significant increases in tuition and fees, as well as increasing other revenue sources (such as summer institutes and international student programs). These strategies allowed state education employment to rise over the past decade even as both systems relied less on state general revenue funding. This shift away from reliance on state funding has had other equity implications for Californians, for whom higher education is more costly and less accessible than before the recession.

The importance of public sector employment for economic opportunity

Public sector jobs play several important roles in the labor market: as an opportunity for workers of color and women, and as a model for secure employment.[12] Government employees are more likely to have health insurance, an employer retirement plan, union representation, and to work full-time. Cuts to the public sector workforce are of particular concern for Black workers, who are overrepresented in the public sector; Hispanic and Asian workers are underrepresented (Figures 10a and 10b). For Black workers, a public sector job is likely to offer higher wages and more job security.[13] When local education employment is removed, whites are underrepresented in the public sector. Whites, who make up only 37% of the total California workforce, account for 64% of California’s teachers.[14] Only 5% of California’s teachers are Black, lower than their share of the overall workforce.

Over the last recession, Black workers in the public sector were more likely to lose their jobs than white workers—Black women even more than Black men.[15] The COVID-19 downturn has been especially damaging for Black workers and other workers of color.[16] The consequences of significant cuts to the public sector will likely exacerbate these trends.

Economic impacts of COVID-19

The economic impacts of COVID-19—driven, at least initially, by shelter-in-place orders that forced many businesses to close down—have been sudden and severe. In just three months, an estimated one quarter of the labor force has been disrupted.[17] From February to April, nearly 20 million U.S. jobs were lost, more than twice the total job loss during the Great Recession. After some recovery in the summer, by September the private sector was still down more than 10 million jobs, a 7% drop (Figure 11). Over the same time period, public sector employment continued to fall; as of September, state and local employment is down more than 6%, or 1,203,000 jobs (federal government employment has been buoyed by temporary Census hiring, which also happened during the Great Recession).

The unemployment rate in California peaked at 16.4% in April 2020, higher than the national rate of 14.7%; it has since rebounded to 11.4% in August 2020 (Figure 1). The employment-population ratio in California in May 2020 dropped to 49.8% before rebounding to 53% in August, still an all-time low since BLS began tracking this measure in 1976[18]. The United States rate is at a historically low 56%.

In the initial months of the pandemic, the distribution of California’s job loss by sector closely followed the U.S. as a whole, but in most sectors California’s job recovery has lagged the nation (Figure 11). Overall, California has lost nearly 10% of its nonfarm jobs from February to September, compared to 7.5% nationally. This difference persists across both private sector and government employment.

The rapidity of job loss in the public sector is unlike previous recessions and has alarming implications for the future. In just six months, we have seen more than one million state and local government jobs disappear; more than 180,000 in California. In the last recession, public sector job losses did not begin in earnest until six months after the recession’s official beginning; we are just approaching that benchmark now. That is not the case in the COVID-19 recession: the shutdown of many government services has accelerated public job losses in advance of the upcoming budget cycle. Many public sector employers could not do layoffs until the end of their fiscal year (June 30), even for workers who were unable to report to work, and most are bound by either contractual or statutory requirements for layoff notice. In June, when we originally published this data brief, we expected that public sector job losses would escalate quickly starting July 1, as revenue losses are realized, 2020-21 budgets are adopted, and decisions were made about reopening universities and schools.

California’s 2020-21 budget drew heavily on reserves to sustain spending in much of the public sector, particularly for K-12. The budget contained a trigger for additional spending on higher education and other segments if the federal government provided stimulus funding by October 15. That funding did not materialize, which will likely accelerate job loss in higher education, in addition to income losses for some public employees and potentially significant cash flow problems for school districts.

Nationally, local education employment and local government general administration have already fallen below their lowest points in the Great Recession. Those two sectors account for two-thirds of state and local employment, making this drop an ominous sign of things to come.

In part because California’s public sector recovery was much stronger than the nation’s after the Great Recession, the state’s public sector employment has not yet dipped below the worst levels we saw in 2013. But those troughs came nearly six years after the recession began; depending on the shape of recovery and the fiscal policies enacted in the months and years to come, California could see state and local employment at levels below the worst months of 2013, when there were fewer Californians and austerity ruled the day.

Endnotes

[1] Sylvia A. Allegretto, “A Post-Great Recession Overview of Labor Market Trends in the United States and California” (Center on Wage and Employment Dynamics, June 14, 2018), https://irle.berkeley.edu/a-post-great-recession-overview-of-labor-market-trends-in-us-and-ca/; Sylvia A. Allegretto, “The Severe Crisis of Jobs in the United States and California” (Center on Wage and Employment Dynamics, August 1, 2010), https://irle.berkeley.edu/the-severe-crisis-of-jobs-in-the-united-states-and-california/; Sylvia A. Allegretto, “California’s Labor Market: Eight Years Post-Great-Recession” (Center on Wage and Employment Dynamics, May 1, 2016), https://irle.berkeley.edu/californias-labor-market-eight-years-post-great-recession/; Sylvia A. Allegretto and Luke Reidenbach, “Shrunken Public Sector Stunts California’s Recovery” (Center on Wage and Employment Dynamics, December 1, 2012), https://irle.berkeley.edu/shrunken-public-sector-stunts-californias-recovery/.

[2] Sara Hinkley and Lisa McCorkell, “The Post-Recession Labor Market: An Incomplete Recovery” (Institute for Research on Labor and Employment, March 25, 2019), https://irle.berkeley.edu/the-post-recession-labor-market-an-incomplete-recovery/.

[3] Allegretto, “A Post-Great Recession Overview of Labor Market Trends in the United States and California.”

[4] Economic Policy Institute, “The Productivity–Pay Gap,” accessed June 18, 2020, https://www.epi.org/productivity-pay-gap/.

[5] Data from United States Bureau of Labor Statistics, historic unemployment rate.

[6] Allegretto, “A Post-Great Recession Overview of Labor Market Trends in the United States and California.”

[7] Allegretto.

[8] Daniel Schneider and Kristen Harknett, “Income Volatility in the Service Sector: Contours, Causes, and Consequences” (Aspen Institute, July 2017), https://assets.aspeninstitute.org/content/uploads/2017/07/ASPEN_RESEARCH_INCOME_VOLATILITY_WEB.pdf.

[9] Dan Goldhaber, Katherine O. Strunk, and Nate Brown, “Lessons Learned From the Great Recession: Layoffs and the RIF-Induced Teacher Shuffle – Dan Goldhaber, Katharine O. Strunk, Nate Brown, David S. Knight, 2016,” Educational Evaluation and Policy Analysis, September 1, 2016, http://journals.sagepub.com/doi/10.3102/0162373716647917.

[10] Learning Policy Institute, “Interactive Map: Understanding Teacher Shortages in California,” December 5, 2019, https://learningpolicyinstitute.org/product/interactive-map-understanding-teacher-shortages-california.

[11] Data from https://www.universityofcalifornia.edu/infocenter/uc-employee-headcount.

[12] Julia Wolfe and John Schmitt, “A Profile of Union Workers in State and Local Government: Key Facts about the Sector for Followers of Janus v. AFSCME Council 31” (Economic Policy Institute, June 7, 2018), https://www.epi.org/publication/a-profile-of-union-workers-in-state-and-local-government-key-facts-about-the-sector-for-followers-of-janus-v-afscme-council-31/.

[13] Jennifer Laird, “Public Sector Employment Inequality in the United States and the Great Recession,” Demography 54, no. 1 (February 1, 2017): 391–411, https://doi.org/10.1007/s13524-016-0532-4.

[14] Author’s calculations from California Department of Education data at https://www.cde.ca.gov/ds/sd/cb/dataquest.asp.

[15] Laird, “Public Sector Employment Inequality in the United States and the Great Recession”; Patricia Cohen, “Public-Sector Jobs Vanish, Hitting Blacks Hard,” The New York Times, May 24, 2015, sec. Business, https://www.nytimes.com/2015/05/25/business/public-sector-jobs-vanish-and-blacks-take-blow.html.

[16] Elise Gould and Valerie Wilson, “Blacks Hit Hardest by Public-Sector Job Losses during Recession, Study Finds,” June 1, 2020, http://www.eurekalert.org/pub_releases/2015-08/uow-bhh081815.php.

[17] Eric Morath, “How Many U.S. Workers Have Lost Jobs During Coronavirus Pandemic? There Are Several Ways to Count,” Wall Street Journal, June 3, 2020, sec. Economy, https://www.wsj.com/articles/how-many-u-s-workers-have-lost-jobs-during-coronavirus-pandemic-there-are-several-ways-to-count-11591176601.

[18] All numbers are from the United States Bureau of Labor Statistics, Current Employment Statistics.

 

Suggested Citation

Hinkley, Sara. Public Sector Impacts of the Great Recession and COVID-19. Center for Labor Research and Education, University of California, Berkeley. June 2020. https://laborcenter.berkeley.edu/public-sector-impacts-great-recession-and-covid-19/.