Do Government Jobs Hurt the Economy?

Why do people who understand economics object when government jobs are proposed as part of the solution for the economic difficulties America and the world is facing today? Even though those making proposals to increase public hiring often seem not to understand the problem, there is a solid basis for objecting—especially when the money must be borrowed to do so.

Government Vs Private Jobs

Government (public) jobs are paid for by taking money from the private economy. There is no other funding source for the government other than taking from the productivity of the private economy. This means that in the end every public job is at the expense of jobs in the private sector.

This is not inherently bad, by the way. It is the way government works. We choose to share a part of our income to do what is in the public good, and we are all a part of that public. But it is only reasonable to do so when the economy is productive enough to afford it.

Adding a public job adds public services, but it does not improve the economy at large. Instead it moves resources from the private to the public sector. Government must take money that would pay for a private job away from the private economy to pay for that public job.

Impact of Government Jobs on the Economy

This relationship is not always obvious because of the ways the economic realities are often manipulated, but in the end the consequences are unavoidable. Borrowing to keep a teacher in his/her job for another year when current taxes will not support it, for example, may delay the inherent economic consequences but it does not eliminate them. Indeed, it compounds them by increasing debt payments, sometimes for extended years.

In truth, however, in this case the loss is disproportionate. Because public jobs now pay more than private jobs, every two public jobs mean three fewer jobs in the private sector. The most accurate way to measure productive job growth in hard times, then, would be to count each two public hires as three loses in the private economy or one job loss to the overall economy.

Government Debt Limits All Job Growth

It is also worth additional emphasis on the point that borrowing makes things even worse in the end. Why? Because it increases the cost of government. Interest must be added, and if the money is not paid back quickly (as it is not at this time) the amount that must be paid back and the cost of interest on the debt multiplies so even fewer dollars are available for either private businesses or the government to hire anyone.

These are facts, but be careful how you read them when it comes to the politicians and their proposals to fix the economy. You can reduce the number of actual employees in the federal government, for example, but increase expenses by hiring private sector workers to do government work which in effect makes them public workers in this context albeit at a lower wage.

Of course it is equally possible to hire one public worker and reduce contractors to reduce government expense and free money back into the private economy. Yes, it is possible.

Government and the Job Situation

I am not recommending any political positions. This is just an important observation about one of the factors to keep in mind if you want to understand the economy and how it works as you contribute what you can (influence, voting, decision making) toward helping the economy improve.

There is much needed to fix our economy, especially in the way of generating jobs, but it must be done intelligently and in the light of economic reality.