December 30, 2008

State Government Spending Cuts Could Lead to Higher Unemployment

For Immediate Release: December 30, 2008
Contact: Alan Barber, 202-486-6180

WASHINGTON, D.C. – As state governments face budget gaps of tens of billions of dollars in FY2009 and FY2010, the Center for Economic and Policy Research today released an issue brief that calculates the potential detrimental effects of state budget cuts on unemployment in the states.

The issue brief, “Will Workers Survive State Budget Belt-Tightening?” demonstrates that in a worst case scenario in which state governments address their budget shortfalls with only spending cuts, their budget belt-tightening would lead to losses of over 425,000 jobs in FY2009 and almost 900,000 jobs in FY2010.  The brief includes job loss estimates due to budget cuts in each state that has reported a budget gap.

“Spending cuts have the effect of restricting demand and increasing unemployment. During a recession, when the economy is already shrinking, these ‘pro-cyclical’ measures can make things worse,” said Matthew Sherman, author of the brief.

As state and local governments are forbidden by law or tradition to run budget deficits, they are limited in the methods they can use to remedy their budget gaps.  As Congress considers a national economic recovery package, this issue brief highlights the fact that aid to state and local governments could help avoid spending cuts and ensuing job losses.