Jobs outlook in public sector grows dimmer

By Lisa Lambert

WASHINGTON (Reuters) - The jobs outlook is growing dimmer and dimmer for the public sector.

Federal employment data released on Friday shows that state and local governments are shedding thousands of jobs even as Republican political leaders say more layoffs are on the way.

In February, state and local governments wiped 30,000 jobs off their payrolls, mostly in education, the Labor Department said. Since employment levels peaked for public sector workers in August 2008, 450,000 jobs have been shed, almost entirely at the local level, according to the Economic Policy Institute, a liberal-leaning think-tank.

"State budgets are in bad shape and that means you're going to see more cutbacks," said David Wyss, chief economist for Standard & Poor's, who expects state and local governments to lose about 300,000 jobs this year. "The biggest impact will be in the fall, because 'back to school' is going to be 'back to school with fewer teachers.'"

Public schools start their new years in the fall, and the National Education Association, a union for education professionals, expects 100,000 school employees to be laid off.

"When a governor can't meet their budget, they have no choice," said NEA Executive Director John Wilson, noting that it is a new phenomenon to cut education jobs throughout the year.

"Teachers are really feeling that they're being made the scapegoats for a bad economy," he added.

The public sector layoffs are in deep contrast to the private sector, where employers hired 222,000 workers in February.

The country is pitched in a battle over public employees that has inspired thousands of demonstrators to descend on the capitals of Wisconsin and Ohio.

On Friday, Wisconsin Governor Scott Walker, a newly elected Republican, was poised to issue layoff notices to 1,500 state workers, blaming a two-week stand-off over his bill to curb union collective bargaining rights. Earlier this week he proposed a budget that would eliminate 21,000 positions and cut funding to education, cities and counties.

Republican governors in Ohio and Indiana are watching Walker's steps closely as they propose rolling back public employee union power in their budget-cutting efforts.

Even though most of February's public sector layoffs were at the local level, they were partly caused by state budget cuts. Because their revenues have been slow to recover from the recession, states have pared funds for local governments. The National Association of Counties recently found reduced state aid is the top cause of counties' income woes.

The federal economic stimulus plan passed in 2009 included money to prevent states from slashing education programs. But those funds run out this summer, which will likely force many school districts to cut more teacher jobs.

"The weak spot in the economy remains budget troubles for state and local governments," said Richard Trumka, president of one of the largest unions in the country, the AFL-CIO, in a statement. "Without some relief from the federal government, state and local layoffs could undermine prospects for sustained economic recovery."

Wyss said he expects weakness in the state and local sector to shave half a percentage point off national economic growth in the second half of 2011. But, he added, he anticipates private sector hiring to pick up enough to balance out any losses in the public sector.

(Additional reporting by Jeff Mayers; Editing by Dan Grebler)