Although private employment in the U.S. economy has rebounded sharply since the pandemic, state and local government employment has yet to recover fully, according to data highlighted by the Urban-Brookings Tax Policy Center. While private employment regained pre-pandemic levels in the summer of 2022 and has continued to increase since then, total state and local government employment remains 0.1% below where it stood in March 2020.
A big part of the story is the steep decline in local public employment in the wake of the pandemic. Between March and May 2022, local employment fell by 9%, while state employment, which accounts for just a third of state and local employment overall, fell by a more modest 4%.
The job loss has been largest in the non-education sector. At the state level, the total number of education jobs has actually increased since before the pandemic. At the local level, education jobs are still 0.4% below the previous peak, but non-education employment is 1.7% lower.
The numbers vary significantly by state. In West Virginia, for example, state and local employment is 6% lower than it was at the beginning of the pandemic. In Delaware, on the other hand, state and local employment is 4% higher. Overall, 38 states have lower levels of state and local public employment than they did in early 2020.
The issue is particularly significant because of the role played by state and local government employment during the slow and painful recovery from the recession in 2009. It took a decade to regain all of the jobs lost at that time, and the decline in state and local public payrolls acted as a fiscal drag on economic growth for years.
The recovery from the pandemic has been shaped by very different forces in the labor market, with overall employment rapidly moving higher as the economy recovered. But state and local governments, flush with cash from surging tax revenues, have yet to catch up. That lag may help tamp down inflation. But in the long run, it could hurt by reducing fiscal support in an economy that appears to be slowing, and by reducing the capacity of state and local governments to provide essential services.