The federal government is a stabilizing factor in the District’s economy, but its role is getting smaller

In March of 2015, for the first time since September 2011, the number of federal civilian employees working in the District showed an increase. If this is the end of a three year contraction in the federal employment, it is a modest one: the net increase was only 1,100 or 0.6 percent over the first quarter of 2014.

Looking back, fluctuations in federal jobs have been associated with major developments in the District’s economy. For example, federal cutbacks contributed to the conditions surrounding the establishment of the DC Control Board in 1995. More federal jobs helped the city cope with the aftermath of the 9/11 attacks and the Great Recession that began at the end of 2007. The recent loss of federal jobs appears, however, to have had only a moderate impact on the District’s economy, as total employment in DC rose by 33,634 over that period.image002

Three reasons help to explain DC’s economic resilience in spite of declining federal employment:

First, District’s private sector is growing in strength and diversity. Over the last 25 years, there has been a shift in DC’s labor market toward the private sector, a shift stronger in jobs than in earnings. From 1990 to 2015, DC lost 22,165 federal jobs (a 10.1 percent decline) while the private sector added 115,000 (a 28.3 percent gain). Adjusted for inflation, over that time federal wages and salaries grew 31.6 percent while the private sector wage and salaries grew 70.6percent, more than twice as fast. image004Looking back even further, to the period of federal cutbacks in the 1990s, we see an even more dramatic shift: From the second quarter of 1993 to the second quarter of 1999, DC lost 50,134 federal jobs, but the private sector gains during the same period offset only a third of this loss with a gain of 18,000 jobs. From 2011.3 to 2014.4, by contrast, the 49,200 gain in private sector jobs was about 3 times greater than the 16,166 federal jobs that were lost. About one-third of the new private sector jobs occurred in education, but increases occurred in a number of other sectors as well.

One thing to watch out is the difference in federal and private sector wages. Most private sector jobs that replace federal jobs pay much less, and if this trend continues, it will have implications on the type of workers and residents the District attracts.

Second, forces currently driving DC’s economy are less dependent on net growth of jobs located in DC. Starting in 2006, the year before the onset of the Great Recession, DC’s population started to increase, and from 2009 to 2014 it increased by 66,665 (11.3 percent). This increased attraction of the District of Columbia as a place to live has affected the economy in a number of ways, and the one most relevant here is that resident employment has been increasing more rapidly than the number of jobs located in DC.image006image008

This can occur for several reasons: more residents working outside of DC, more residents holding higher paying jobs, residents taking jobs of commuters who retire or otherwise leave, or residents working for themselves or as independent contractors.

Third, federal contracting possibly fuels some of the strength in the District’s private sector. In recent years, federal government expenditures for non-defense programs have shifted toward greater reliance on purchases of goods and services rather than compensation of employees. The change was particularly great starting around 2000; from 2000 to 2014, federal purchases went up 153 percent, compensation by 91 percent. The increase in purchases of services was particularly strong, tripling between 2000 and 2010 before tailing off a bit. Data on such purchases from DC’s private sector are not available, but a pattern here similar to the national one would help to explain some of the rapid growth of professional and technical services in DC. Agencies are more likely to contract with businesses or professionals in close proximity. Indeed, employment in professional and technical services increased 54 from the first quarter of 2000 to the last quarter of 2014—this is almost double the 28.4 percent pace for employment growth in all of DC’s private sector.image010

The recent decline in federal employment may not have upended the District’s economy, but the federal sector remains a vital component of the District’s economy. Federal spending accounts for 26.1 percent of all jobs in DC, 31.1 percent of all wages, and is a source of contracts for DC’s private sector. What happens with federal spending will therefore have considerable influence on the future growth in DC’s economy. If federal spending remains flat or declines, the rate of growth in employment and earnings generated by the District’s economy will depend on how the private sector performs. DC growth rates then could approach or surpass the US only if DC’s private sector outperforms the nation as a whole. For most of the past 3 1/2 years, DC’s private sector employment actually grew faster than the US average, but it has been below it for the past three quarters. Wage and salary growth in DC has been about the same as the US average.

Increases in federal employment and earnings were important for DC’s economy in recovering from the recession in 1990, the 9/11 attacks and recession in 2001, and, of course, the Great Recession from 2007 to 2011.3. Thus, the federal government’s stabilizing role will likely remain important for the District’s economy in the coming years.

You can find more on this topic in our most recent Monthly Economic and Revenue trends report.

 What exactly is this data? Employment data is from Bureau of Labor Statistics, and wage data is from the Bureau of Economic Analysis. Totals for jobs and wages include state and local government. DC resident wages and salaries estimated by the Office of Revenue Analysis, assuming wage and salary supplements are the same % for DC resident wages as for wages earned in DC. Detail may not add due to rounding. Government consumption data is from NIPA Table 3.10.5. Government Consumption Expenditures and General Government Gross, also from the Bureau of Economic Analysis, last revised on April 29, 2015.

12 years of change in D.C. economy, yet some residents remain excluded from employment booms

A recent blog post noted that in the five years after the Great Recession, DC resident employment increased rapidly, but unemployment went down only slowly.

The loose connection in D.C. between resident employment and unemployment is not new, but remains cause for concern. From 2009 to 2014, DC unemployment went down by only one for every increase of ten in employed residents.

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In the 2002 to 2007 pre-recession period, however, the comparable impact of resident employment gain on unemployment was even less. Then the decline was only one-half of an unemployed person for every ten additional employed residents (that is, reduction in the number of unemployed DC residents, 1,041, was only 5 percent as much as the 23,652 increase in resident employment). The strong growth in labor force and resident employment relative to the population overpowers the relationship between unemployment and resident employment in the chart below:

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The relationship between resident employment and unemployment in D.C. was also quite loose in the recession years. From 2007 to 2009, unemployment rose by 15,829, but there was only a decline of 1,920 in employed residents. That is, unemployment rose 8 times faster than the resident employment. In the U.S. the relation was closer to one-to-one, and in the suburbs, less than 1 to 2.image005

Situations in which an increase in employed residents is associated with a relatively small decrease in the number of unemployed are not unique to D.C., but they seem to occur where job growth occurs and the unemployment rate is already quite low.  For example, in the U.S. from 2002 to 2007, the decrease in the number of unemployed was about 10 percent of the growth in resident employment, but the U.S. was starting from a 5.6 percent unemployment rate, close to what some thought at the time was a full employment number. In the DC suburbs, over the 2002 to 2007 period, the reduction in unemployment was about 7 percent of the growth in employed residents, but the suburban unemployment rate in 2002 was 3.4 percent. In North Dakota, as the energy sector expanded from 2009 to 2014, the decline in the number of unemployed was 5 percent of the gain in resident employment, but in 2009 the unemployment rate there was 3.6 percent. These are all instances where the booming economy and a tight labor market invites new working adults to join the labor force.

In D.C.’s case, the unemployment rate in 2009 was 10.0 percent and the bump up in resident employment over the next five years did not translate into more jobs for the existing unemployed.  Even when plenty of people were unemployed in the District, they did not benefit from the economic expansion or found jobs.

The BLS labor force and Census population numbers are summary data snapshots at two points in time. These snapshots, as important as they are, do not give a very good picture of the degree to which changes may be occurring in the composition of the labor force and population that have a bearing on the connection between resident employment and unemployment. But these snapshots do suggest some significant changes have occurred in the dynamics of the DC market over the past 12 years.

This can be seen most clearly in the pre-recession period from 2002 to 2007. DC’s labor force went up by 22,611 over those years while the population increased by only 2,575. Where did the additional labor force come from? Some no doubt came from the existing population as the falling unemployment rate encouraged more people to seek and obtain work. But to get such a large increase from the existing population seems questionable when the 1,041 decrease in unemployment that occurred was such a small percentage of the growth in resident jobs. The most likely explanation is that the growth in the labor force was largely the result of migration patterns, the churn in the city’s population. With little change in the overall level of population, the net result of who moved in and who moved out could easily have produced an increase in persons who were in the labor force and employed.

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Summary labor market and population statistics do not give information on who the unemployed are and how the composition of unemployment may have changed over the last 12 years, but such details are important for understanding current labor market dynamics in D.C. and when considering policy remedies. From numerous studies that have been done in D.C. and elsewhere it would be expected that a large share of the unemployed in D.C. are people lacking job skills and work experience. Beyond that, however, other matters to consider are the degree of turnover among the unemployed, how important the discouraged worker phenomenon is in the composition of measured unemployment in D.C., whether migration patterns that have increased the labor force also contribute in some way to D.C. unemployment, how long unemployed persons have lived in D.C., and whether the operation of the District’s unemployment insurance system has any particular effect on measured unemployment. It would also be useful to know more about how the relationship between resident employment and unemployment described here for DC compares with that of other cities.

What exactly is this data? Labor market data is from the Bureau of Labor Statistics. BLS develops these statistics with the assistance of models, with inputs that include population numbers from Census, unemployment insurance statistics, the American Community Survey, and the Current Population Survey administered by the Department of Labor for and in cooperation with Census. BLS revises data as more information becomes available. The data used here reflect the comprehensive revisions released on March 4 2015 to take account of population and other changes; these revisions were not just to the most recent year but to the entire data series.

Labor market data is the seasonally unadjusted quarterly average for the December quarter for the years shown. The data for the DC suburbs is calculated by subtracting amounts for the District of Columbia from the totals for the Washington Metropolitan Area.

Population numbers for the December quarter are taken from Moody’s Analytics (Economy.com), which derives quarterly estimates from annual Census Bureau population numbers.

DC labor market over the last 5 years: many more jobs for residents, modest cut in unemployment

According to the US Bureau of Labor Statistics, from December 2009 to December 2014, the period of recovery from the Great Recession and subsequent expansion, the number of employed D.C. residents increased by 49,166—that is 16.1 percent. The percentage increase is quite remarkable—two-and-a-half times the rate across the US as a whole (6.4 percent) and the D.C. suburbs (6.5 percent), and even greater than in the resident employment growth in North Dakota (15.6 percent), an energy boom state, with many new jobs attracting a lot of new residents.image002What accounts for the increase in resident employment? It is not reduction in unemployment. From 2009 to 2014, D.C. resident employment grew by 49,166 while unemployment declined by only 4,776. This is a modest decline: For every 10 additional D.C. residents who got jobs since 2009, the number of unemployed residents went down by only one. The relatively loose relationship between resident employment and unemployment contrasts with the suburbs and the entire US, where for every gain of 10 in employed residents, the declines in unemployment were an average of 2.6 and 6.8, respectively.

Here is another way to look at it: Over the past five years, the District reversed only about third of the increase in unemployment caused by the recession. The suburbs reversed nearly half of it and the US reversed nearly 80 percent.

image004The most likely explanation for why resident employment rose so rapidly and unemployment fell so slowly is the growth of DC population. From 2009 to 2014, DC’s population increased by 65,400. This 10.9 percent increase in population growth did not directly cause either the 13.1 percent increase in DC’s labor force or the 16.1 percent increase in DC’s resident employment.

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Some of the increase may well have come from the existing population reentering the labor force; however, these two labor market indicators could not have grown as they did in the absence of more population. The opportunities for employment in both DC and the suburbs (reachable from DC by commute) appear to have attracted additional people to the city. The March trend report coming out this week has much more on this topic.

We will write more on the relationship between population, resident employment, or unemployment in another post.

What exactly is this data? Labor market data is from the Bureau of Labor Statistics. BLS develops these statistics with the assistance of models, with inputs that include population numbers from Census, unemployment insurance statistics, the American Community Survey, and the Current Population Survey administered by the Department of Labor for and in cooperation with Census. BLS revises data as more information becomes available. The data used here reflect the comprehensive revisions released on March 4, 2015 to take account of population and other changes; these revisions were not just to the most recent year, but also to the entire data series.

Labor market data is the seasonally unadjusted quarterly average for the December quarter for the years shown. The data for the DC suburbs is calculated by subtracting amounts for the District of Columbia from the totals for the Washington Metropolitan Area.

Half of those on unemployment insurance in the District exhaust their benefits

The District’s unemployment rate is higher than that of all other states: the preliminary number for December is 7.3 percent compared to, for example,  4.8 percent in Virginia and 5.5 percent in Maryland. This is not very unusual given that we are an entirely urban jurisdiction. Perhaps for this reason, the demands on the District’s unemployment insurance program are higher than most other states’ programs.

We looked at the data on the District’s unemployment program and found the following:

  • The District’s civilian labor force is 378,000 (data from the third quarter of 2014) but its unemployment insurance program covers 522,000 workers. This is because unemployment benefits are paid at the place of employment.  Employers pay into the unemployment insurance fund of the state where they are located.  And a commuter who works in the District is paid by the District’s unemployment insurance program if he loses his job, even though he is not a District resident.
  • Some workers covered by the District’s unemployment insurance program have a hard time finding a job.  In the District, unemployed workers receive benefits for 19 weeks on average compared to the national average of 16.6 weeks. In only two other the states the average duration of unemployment benefits is longer: Delaware and Kentucky.
  • A larger share of the unemployed in the District exhaust their benefits because they are still unemployed 26 weeks after losing their jobs. Nearly half of those who receive unemployment benefits exhaust them while the average exhaustion rate in the nation is 38 percent.

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Source: US Department of Labor

Why is this? While the unemployment in the District is high, the rate in the metropolitan area is low at 4.4 percent. Shouldn’t these workers be able to find work elsewhere in the region? This suggests that some workers in the District have skills that may not be needed in the metropolitan area, or have hard time getting to places in the metro area where their skills are valued.