Thursday, March 24, 2011

Texas Cuts 600,000 Jobs

Some of the job cuts that state and local governments arguably should have been making over the last three years as their tax bases eroded will hit with full force this year. I hope the story in other states will not be as severe as Texas, where the proposed budget will result in 600,000 job cuts, according to state government estimates. This estimate includes only jobs funded directly or indirectly by state spending. It does not count people who are no longer able to work after government services, such as transportation, are taken away, nor does it count the jobs lost at businesses where revenue falls because customers become unemployed. Texas is a big state, but not big enough to absorb the loss of 600,000 jobs. If you consider the follow-on effects of the cuts, the state’s unemployment rate could easily go above 15 percent and approach depression territory. It is only a proposed budget at this point, but the state has few options, and the governor and legislative leaders have already ruled out tax increases.

Texas may be an extreme case, but similar cuts will be happening all over the country and in more than half of the world’s wealthiest countries as various degrees of budget austerity go into effect. The austerity budgets will add to the stress of already stressed labor markets.

But if you think governments can just keep on spending the money, Portugal provides a cautionary tale. The country was downgraded today after legislators rejected budget cuts that would have withheld food and housing from some of the country’s poorest citizens. The downgrade means that Portugal will be spending more money than before on interest payments and will have to find even bigger spending cuts when the new legislature convenes in two months.