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Economic SYNOPSES
short essays and reports on the economic issues of the day
2004 ■ Number 22

Public Officials and Job Creation
Thomas A. Garrett and Daniel L. Thornton
ublic officials often claim credit for creating jobs
war in Vietnam (armed forces on active duty are excluded
through the programs and policies they enact. It is not
from payroll employment). Thus, when it comes to cyclical
uncommon to hear, for example, a public official pledgvariation in payroll employment, it seems that the business
ing to increase the number of jobs in a particular locality or
cycle largely determines the ebb and flow, despite any claims
nationally. Public officials can create jobs in two ways: The
by lawmakers and policymakers that they act to stem the tide.
first is directly, by creating government jobs. The second is
Second, in terms of long-run jobs growth, have policies
indirectly, by (i) enacting policies that create an economic
enacted by public officials affected the average growth rate of
environment that affects long-run private sector job growth
payroll employment? Again, the chart suggests that the answer
or (ii) using countercyclical fiscal policy to affect short-run
is no. Importantly, there is no indication of a noteworthy break
private sector job growth.1 How effective have public officials
in payroll employment from the 2.1 percent growth path,
which is what one would expect if public officials enacted
been at creating jobs?
policies that changed the average rate of job growth. The
The accompanying chart shows the natural logarithm of
apparent lack of a break from the trend line is especially interpayroll employment (measured by annual nonfarm payroll
esting given the array of national economic policies—changes
employment) from 1946 to 2003, along with the shares of total
in tax law, changes in the minimum wage, workplace safety,
government, federal government, and state and local governetc.—that have been enacted in the past 60 years. ■
ment employment. It gives no indication that public officials
have created jobs directly. After increasing from 1946 to 1975,
1
Contract workers that are a result of a new government program are also
total government employment as a percent of payroll employconsidered in (i). Simply substituting contract workers for existing government
ment has trended down. Evidence that public officials create
employees does not change total employment.
government jobs is even weaker if one considers
federal employment. Federal employment as a
percent of payroll employment has declined nearly
Log of Nonfarm Payroll Employment and Share of Total Government,
monotonically over the 1946 to 2003 period, from
Federal Government, and State and Local Government
5.6 percent in 1946 to 2.1 percent in 2003.
Natural Log of Nonfarm Payroll Employment
Employment Share (%)
Have public officials created jobs indirectly?
0.2
12
Again, the chart raises questions about claims
0.18
11.8
they might make. First, consider cyclical varia0.16
tion in payroll employment, as measured relative
11.6
0.14
to a the trend line. With payroll employment
11.4
0.12
expressed in natural logarithms, a constant growth
rate is represented by a linear trend. The trend
11.2
0.1
line indicates that payroll employment has grown
0.08
11
at an average rate of about 2.1 percent during
0.06
the post-World War II period. The shaded areas
10.8
0.04
represent years when there was an official reces10.6
0.02
sion during at least part of the year. This measure
of cyclical variation indicates that the lengths of
0
10.4
significant deviations of payroll employment
from a 2.1 percent trend line roughly match the
Federal
State & Local
Recession Years
Total Government
Linear Trend (Nonfarm Payroll Employment)
Nonfarm Payroll Employment
lengths of the business cycles, with the exception
of the 1960s during the military buildup for the
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

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