Failure by Congress to avoid the “fiscal cliff” could put hundreds of thousands of people across the nation out of work, most of whom don’t work for the government and don’t live in federal government strongholds.
A study this year by George Mason University’s Center of Regional Analysis estimated that the U.S. could lose 2.1 million jobs by spending cuts alone, without considering the effects of tax increases that could kick in next year and cut income for workers and business owners.
Fewer than 300,000 of those lost jobs would come from direct federal employee cuts, according to the center. Many more would come from government contractors and state-level positions. The vast majority, however, would come from other private-sector jobs.
Center director Stephen Fuller said the biggest impact would come to the retail and construction sectors and would happen gradually as higher taxes would bite into income for consumers and business owners, causing them to spend less freely.
“None of this happens all at once,” Mr. Fuller said. “You have the initial [federal] cuts, then it works its way through the economy and there’s a psychological effect that takes place.”
While many federal jobs are concentrated in the D.C. area, the federal government has a large contingent of workers in every state. According to data from the U.S. Census, nearly 2 million permanent civilian employees were spread among the 50 states in 2009, the most-recent year for which data were available. The number of employees in each state varies, from about 3,000 in Delaware to 169,000 in California. The other states with the most federal employees are Texas, Maryland and Virginia, as well as the District — all of which have large communities of private-sector contract employees that support the government workforce and facilities.
The George Mason study predicted Virginia would lose 207,000 total jobs in the public and private sectors, while the District would lose 127,000 and Maryland would lose nearly 115,000 — ranking second, fourth and fifth respectively in potential job losses.
California and Texas, each with a strong military presence, ranked first and third at 225,000 and 160,000 possible job losses.
With nearly a half-million jobs on the line in Virginia, Maryland and the District, dropping off the fiscal cliff would deliver a direct blow to federal employees and private contractors around the nation’s capital who depend on the government for business.
But the prospect of higher taxes and federal funding cuts — half of which would be applied to defense programs — has some observers predicting much greater indirect job losses for everyday businesses that may have to lay off workers or close down as the result of another economic downturn.
“Taxes go up and people have less to spend, and that hurts the state economy,” said Warren Deschenaux, director of the Maryland Department of Legislative Services’ Office of Policy Analysis. “There’s not a huge impact directly on what the state spends, but the major effect is that we might be going into a recession if all of these things hit at once.”
Officials in California are wary of such a scenario and have warned that job losses could cause the state to lose as much as $22.7 billion in gross state product.
In addition to the 225,000 possible job losses, another 400,000 Californians could lose their current unemployment benefits at year’s end, as the extension on such benefits would expire.
Robert Kleinhenz, chief economist for the private nonprofit Los Angeles County Economic Development Corp., told The Associated Press recently that job losses combined with declining income due to tax hikes would be enough to reverse the ongoing recovery from the last recession.
“This is a timing problem,” he said. “If the Congress can work out the timing, maybe space out some of these adjustments over the next couple of years, then we would not endanger this recovery.”