State jobs expected to fall 'pretty hard'
By Sean Hao
Advertiser Staff Writer
Wage and benefit cuts. Furloughs and layoffs. The painful money-saving steps have become a workplace reality in Hawai'i's private sector since the state's economy turned sluggish about two years ago.
State government workers, on the other hand, have largely been given a pass. Until now.
Since peaking in December 2007, Hawai'i's economy has lost about 32,300 jobs — a 5 percent slide — with almost all of it coming out of the private sector.
In the same period, the state government has added about 2,300 jobs, according to state employment data.
But if history is any guide, it's only a matter of time until state workers begin to feel the pinch of the current recession.
"Clearly, there has been a disconnect over the last year where state jobs have continued to go up while private-sector payrolls were shrinking," said University of Hawai'i economist Byron Gangnes.
Regardless of the outcome of current contract negotiations between the governor and public worker unions, the economic cycle is expected to catch up with government employees.
When an economy is growing, private-sector jobs tend to be the first to benefit. Then late in the cycle, government jobs grow. As the economy falters, you get the same in reverse.
Public-sector employment "is likely to come down pretty hard during the next few years because of hiring freezes not to mention layoffs," Gangnes said.
The anticipated drop in government employment could alter perceptions of state jobs among many in Hawai'i.
State jobs have been viewed by some as "guaranteed employment" with moderate wages compared with private sector jobs, but good benefits and high job security.
State "jobs have never been entirely immune from the economy — that's something of a myth," said labor Economist Lawrence "Bill" Boyd, who serves on the faculty for the Center for Labor Education and Research at the University of Hawai'i-West O'ahu. "The way these things have gone, you do see declines in public-sector jobs during tough times."
For many state workers, waiting for the cuts they know are coming is stressful.
"People are a little frustrated because they know its going to happen," said David Landry, a 26-year state worker and UH-Manoa wood-shop technician. "Everybody thinks it's inevitable — we're going to have to sacrifice something. It's just a question of how much.
"I don't mind chipping in, but I don't want to bear the brunt of it either."
In the mid-1990s during the previous major slowdown for Hawai'i's economy, public-sector employment fell by about 2,000 jobs before recovering by decade's end, according to data provided by the University of Hawai'i Economic Research Organization. Those public-sector reductions came about two years after overall statewide employment peaked.
There are signs that state public-sector employment already is falling. From January through May, the number of state public-sector jobs fell by 1,500 jobs, or nearly 2 percent on a seasonally-adjusted basis, according to local consulting firm TZ Economics.
"You wouldn't think that the discrepancy between private- and public-sector employment performance would persist and I'm pretty sure it won't," said local economist Paul Brewbaker of TZ Economics.
Brewbaker said the drop in tax revenue, coupled with the constitutional requirement that the budget must be balanced and the fact that workers' salaries make up the majority of the state expenditure, means public-sector jobs will soon suffer a downturn.
There were about 75,000 state workers in Hawai'i, and they represent about 12 percent of the overall workforce, according to the University of Hawai'i Economic Research Organization.
Pay and benefits for state workers makes up about 70 percent of the state's annual $10 billion operating budget, according to Gov. Linda Lingle.
In the private sector, the decline in jobs began in early 2008 and was marked by mass layoffs at local icons Aloha Airlines, Hawaiian Telcom and Maui Land & Pineapple Co. The state's jobless rate continues to hover near 7 percent — the highest rate in decades. Hard-hit industries include construction, accommodations, retail and agriculture.
On a seasonally adjusted basis, Hawai'i had 19,700 fewer jobs in May compared with a year ago, according to TZ economics.
One major exception has been state public worker employment, which rose by about 2,000 jobs year over year on a seasonally adjusted basis.
That discrepancy has spurred calls by Lingle and others that state public workers share the burden of an economy weakened by reduced tourism and construction activity.
That slowing economy has cut into state tax revenues, prompting Lingle to order state workers to take three furlough days a month for two years, which is equivalent to a 13.8 percent pay cut. That plan, which was aimed at partially closing a nearly $800 million budget gap, stalled when a Circuit Court judge ruled this month that furloughs should be subject to collective bargaining.
As an alternative, Lingle has said that she could lay off 2,500 state workers under her direct control. Spending restrictions to the state Department of Education, University of Hawai'i and the Hawai'i Health Systems Corp. could trigger more layoffs.
Last week, state workers offered to take a 5 percent pay cut to help balance the budget, and their union leaders noted that 5 percent was the same pay cut that the governor, lawmakers and mayors had taken.
Three days later Lingle, the lieutenant governor, her Cabinet and top administrators announced they would take the equivalent of a 13 percent pay cut.
Public union leaders have criticized Lingle for trying to balance the budget on the backs of state workers. They also point out that cutting state jobs and wages likely would worsen the state's economic climate. Union leaders have suggested that the governor and lawmakers use money from the state's hurricane relief fund and rainy day fund and consider temporarily raising the general-excise tax to close the gap.
Boyd, from UH-West O'ahu, said a major state worker layoff would ripple throughout the economy.
"It's going to be one of the worst hits the economy has taken," Boyd said. "People make these statements that the private sector did this so the public sector should do that — so essentially we're going to have a swine flu party and make sure a lot more people get sick. Why wouldn't people see that as a major problem?"
Any major reduction in state workers would likely have a lasting effect, said economist Brewbaker.
"Whatever the magnitude of the initial adjustment, the more important outcome will be that for several years hereafter the public workplace at the state level will probably end up fixed, inert as a legacy," he said. "I'm guessing public employment won't be growing on the way out of this."