Between January 2008 and January 2010, the U.S. private sector shed 9.8 percent of its workforce, either through layoffs or reduction of employee hours. One might have expected the output of the private sector to have declined during the same period, but no — Real Gross Domestic Product remained essentially the same.
What is the way to interpret these statistics? Was there some major technology adoption between 2008 and 2010 that suddenly allowed nine American workers to do the work that formerly took ten to complete? Not that we know of. Was there a major swell of physical or human capital into private industry? The national statistics don’t show any such increase.
No, the more likely explanation is that, prior to the recession, at least one in ten American work-hours were spent cruising YouTube or something similarly non-productive. When the recession hit and private enterprise had its feet put to the fire, it finally squared away its long-tolerated dead weight.
There is much talk about the relative efficiency of private versus public entities, and it is generally recognized that U.S. business is more productive than U.S. government. What the “Great Layoff” shows is that this productivity gap is not the consequence of business’ organizational DNA being superior to government’s, but rather that business benefits from a Darwinian struggle. In fat times, incompetent businesses grow just the same as competent businesses. In the lean times, the weak are eaten.
Government has no competition — the only lean times a government must suffer are those imposed by its own taxpayers. Free from routine purgings, feckless government grows alongside the capable, dragging down the average performance with its ineptitude and absenteeism.
Since the recession began, the federal government has fastidiously avoided any sort of belt-tightening, reasoning that such a fiscal policy would be a disaster for Keynesian demand-boosting efforts. But in the context of federal human resources, this argument is the equivalent of the saying that we should pay people to dig ditches and fill them back in. Were the marginal government worker engaged in productive labor, Keynesian multipliers might be sufficient to justify his continued employment, but just the multipliers alone is a thin gruel.
Thus comes one of the most straightforward proposals to help fix the deficit. Why not press the U.S. government to throw out its chaff just as business did? If private industry saw no reduction in its output even after a 10 percent cut in its workforce and a four-year salary freeze, why couldn’t the government pull the same feat?
A 10 percent workforce cut (applied to both contractor and regular labor) and a four-year salary freeze are not small fiscal potatoes. Over a ten-year window, they would produce roughly $500 billion in savings for the federal government. It is rare to find opportunities to cut spending without some commensurate drop in services, but this appears to be one of the federal budget’s opportunities for a free lunch.
Action: Cut the federal workforce by 10 percent and freeze salary growth for four years. 10-year savings: $500 billion.