The spending cuts from the debt ceiling deal remain unsettled, but one thing is certain: more jobs are likely to be lost at a time when Minnesota is roughly 100,000 jobs short of where it was before the Great Recession.
The state's employment market has been growing this year at a paltry rate of about 1 percent -- half the pace needed to give employment a solid boost. While private employers have been hiring at greater levels over the past year, cuts in state and local government have created an undertow of sorts.
"The private sector is not adding jobs at a rate sufficient to absorb all the unemployed and under-employed workers out there," said Steve Hine, the state's lead labor economist.
And now comes the federal spending cuts -- at least $2.1 trillion in deficit reductions over 10 years. Nobody knows how the changes will play out state by state, but the prospect of more public payroll reductions is tough news for the 200,000 Minnesotans who are unemployed and already facing an anemic jobs market.
"It's not cataclysmic, but it is a drain on the economy when it's very weak," said John Irons, an economist with the Economic Policy Institute. "It's going to be a slow-motion train wreck."
The Economic Policy Institute, a non-profit think tank that focuses on low- and middle-income Americans, estimates that the initial federal spending caps will mean a loss of 323,000 jobs nationwide in 2012. The cuts should deepen each subsequent year, Irons said.
In Minnesota, most vulnerable to the cuts will be the estimated 33,000 federal employees who work in the state. In addition, about 5,000 state government workers get paid through federal funds, such as those who administer Medicaid payments for the Department of Human Services.
Some economists downplay the potential effects of the deficit cuts on jobs, noting the cuts are relatively small compared to overall government spending. Further, they anticipate long-term benefits, suggesting that less money spent on federal government means more dollars in the private sector, which should stimulate job growth.
Trimming more federal jobs will be painful, but it's a necessary evil to get federal spending under control, said Bill Blazar, an executive at the Minnesota Chamber of Commerce.
"The goal is a growing and healthy private sector economy, one that is producing far more jobs than it is today," Blazar said. "To the extent that we've got to go through some trauma and pain to get there, I think most people in the business community would say, 'Better to get started now than to wait any longer than we already have.'"
The debt ceiling deal calls for cuts of $900 billion through discretionary spending caps, but it hasn't been decided how the limits will be reached. Further, a special committee of 12 lawmakers will have until Thanksgiving to recommend an additional $1.2 trillion in deficit reduction.
Minnesota has been scheduled to get about $16.7 billion in federal funds for the 2012-2013 cycle -- about 27 percent of the state's $62 billion two-year budget, according to Minnesota Management and Budget. The bulk of the federal dollars goes to Medicaid, which pays for health care for the poor. While Medicaid is not part of the first wave of $900 billion in spending limits, it could be part of the $1.2 trillion in deficit reduction that the new "deficit dozen" will consider.
"At this point, it's all speculative," said Jim Schowalter, commissioner of Minnesota Management and Budget.
Poor economy a threat, too
Human Services commissioner Lucinda Jesson said that she was relieved the immediate caps won't affect Minnesota's food support or Medicaid funds. Still, she noted, several other programs are vulnerable, such as subsidies for child care and chemical dependency programs, as well as block grants for mental health treatment and services that help keep seniors in their homes.
As difficult as the new caps will be, Jesson said she thinks they aren't as large a threat as the sluggish economy itself.
"A poor economy means a whole lot more people on already stressed programs," she said. "We're seeing people in our program who have never been in our programs before ... someone who worked 25 years in construction. The economy is a real concern."
You don't have to tell Marnie Fleming, who lost her marketing job at Data Sciences International in 2009. She has been struggling to get a full-time job ever since, despite vigorous networking. The University of Minnesota graduate scored a part-time job as an usher and tour guide for the Minnesota Twins. She says she is grateful for the work, but had to move back in with her family.
As far as she's concerned, the Great Recession never ended. The battle on Capitol Hill over the nation's deficit seemed worlds away.
"I feel like I'm in such survival mode, and I look at the fact that they can't get it together, and I'm like, 'Really?' There's all these people suffering," Fleming said.
The pending federal cuts are drawing some sharp responses from local community leaders.
'Broken' social contract
Hennepin County Commissioner Peter McLaughlin, said he worries that more austerity cuts will fall disproportionately on average Americans and that the new deficit committee will skirt big ticket items, such as overseas tax loopholes and special tax breaks benefiting large U.S. corporations.
"I think the social contract in the country and in the state of Minnesota is broken," McLaughlin said.
More federal reductions mean the state's private employers will have to shoulder more of the burden to generate jobs and drive down unemployment. Blazar, at the Chamber of Commerce, said he thinks the private sector can produce the jobs, but it could take a few years.
"There's a very substantial reluctance to add headcount on a permanent basis," he said.
Pat Collins, a human resources director for Open Systems International Inc., agreed. His company, which makes system controls for electric utilities around the country, just moved into its new headquarters in Medina and had added 80 people this year, including software developers and electrical engineers.
But Collins called his company an anomaly because it's driven by the energy sector. He talks to many human resource managers, and most are trying to decide how to trim benefits or are laying off workers.
"I feel like an island of success in the midst of all that pain," Collins said. "People are anxious to start hiring, but there's no need, no drive."
Jennifer Bjorhus • 612-673-4683