State and Local Job Losses Level Off Just in Time for Fiscal Cliff

Chris Mai of the Center on Budget and Policy Priorities presents a chart that captures one of the most significant trends in the U.S. economy: the gradual stabilization of state and local payrolls over the past few years:

The recession drastically lowered revenues at every level of government. For the federal government, the result has been large deficits. States, on the other hand, must balance budgets each year, meaning that the loss of revenues has led to mass layoffs and hiring slowdowns for state and local workers.

For three-plus years, the slow deterioration of state and local payrolls has been a drag on the broader economy. The federal government tried to reverse or at least halt the loss of state and local government workers in its 2009 and 2010 stimulus measures, but the chart makes clear that those efforts had, at best, limited success.

Now, however, the slow and painful process appears to be coming to an end, and it seems that public sector employment will stop being an obstacle to stronger economic growth, and possibly even contribute to a stronger recovery.

As Mai suggests, however, that future is very much in doubt if Congress produces a deficit reduction package that undercuts the states' efforts to repair their budgets. There are a number of different ways in which states and cities rely on the federal government for funds, from Medicaid to education. As a result, there are many ways the feds could set states and localities on another round of layoffs.