05/29/2012 08:45 am ET Updated Jul 29, 2012

States on the Ropes

One reason for the stubbornly high unemployment rate, and one that does not get much attention, is the steady loss of government jobs, especially at the state and local level. Overall government employment has declined 2.6 percent in the last three years. And the pace seems to be picking up. We lost 221,000 government jobs in 2010 and 265,000 in 2012.

This is no small matter. Government at all levels employs about 19 million people, a substantial portion of the labor force. By and large, these are good jobs with excellent benefits. The erosion of public sector employment is a worrisome trend that can only exacerbate the growing divide between haves and have-nots.

The biggest loss of government employment is at the state and local level. California, for example, is facing a $16 billion budget shortfall that may necessitate draconian cuts in funding for public schools and public safety. Governor Jerry Brown is appealing to the voters to approve tax increases to make up the shortfall. Good luck with that.

A major part of the problem, in addition to a weak economy, is inefficient state laws and policies that are in many instances even more inefficient than the Federal Government. This crisis creates a great opportunity for the states to impose restraints on spending, modernize regulations, encourage business investment and generally bring their operations up to date.

They must do something. As Washington continues to wallow in partisanship, seemingly incapable of making any significant decisions to address the weak economy and growing fiscal imbalance, the states are being left holding the bag for basic services that citizens expect from government. School populations are growing and Medicaid rolls are expanding while federal aid is declining. Last year brought the end to $150 billion in federal stimulus funding.

But the states, unlike the federal government, cannot run up mountains of debt and pass it along to future generations. Most states are required to balance their budgets one way or another. Kiplinger reports that some 30 state budgets will be in the red next year. The race is on to slash more spending from budgets that have already been decimated, and to raise revenues from a recession-weary public that is increasingly hostile to tax increases.

Unfortunately, one major target of state budget cutters is infrastructure. Many highway, bridge and rail projects are being delayed while Congress dithers about reauthorization of the highway bill. There is general agreement that in times like these, spending on infrastructure is a sound investment in the future that creates jobs today, but the extreme political polarization in Washington makes even the most prudent decisions problematical.

We tend to focus on federal matters but for most people the face of government is to be found in the local agencies providing basic services such as police protection, ambulance services, welfare, and medical care for the poor. It is on the state and local level where the erosion of public services is being most keenly felt.

Jerry Jasinowski, an economist and author, serve d as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.