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).
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.
- 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. Real wage growth from 2000-2007—economic boom times—failed to keep pace with rising productivity. 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.
- Long-term unemployment rates were markedly higher than in previous downturns.
- 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.
- 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.
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 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. 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.
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). 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.