Thursday, January 7, 2010

Should local governments be eliminating jobs?
A recent Bloomberg News syndicated column that was published in the Star Tribune takes state and local governments to task for failure to follow the lead of private sector companies in terminating employees as a response to the slumping economy. There are several things wrong with this critique, though, not the least of which is the fact that it ignores supply and demand realities.

In the current economic recession, consumers are carefully managing their checkbooks. Many of them have lost jobs, or absorbed pay freezes or pay cuts, and have fewer dollars to devote to discretionary spending. For private sector businesses, a reduction in demand of goods and services is likely to affect the supply end and result in reduced profits as well as cuts in expenditures. Along with that come job cuts that, according to the Bloomberg analysis, are occurring at a percentage rate significantly higher than that of the local government sector.

What the analysis fails to mention, though, is that decreased demand for private sector goods and services does not necessarily mean the same for government services. If anything, demand for local government services—especially social services, public health services, and public safety, among others—often increases during times of great economic stress.

When demand increases, delivery of government services--like the delivery of private sector services—sometimes requires stabilization or even increases in levels of staffing. That being said, due to dramatic cuts in state aids and credits, Minnesota cities have already been doing more-with-less for years.

There are many good management strategies that public and private sectors can learn from each other. Assuming a one-size-fits-all approach, though, is ill-advised and can lead to faulty policy decisions. (Thank you to my friends at StrongTowns for flagging the Bloomberg piece on their Facebook page.)