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Multiplier Effect Calculates Economics of State Layoffs

January 25, 2011

AUSTIN, Texas - State budget plans call for eliminating up to 10,000 state jobs and 100,000 positions in public schools. But a budget analyst warns that cutting public-sector jobs results in the loss of private-sector jobs, too.

Economists call it the "multiplier effect."

Eva Deluna Castro, senior budget analyst with the Center for Public Policy Priorities, explains the economic ramifications when public employees get pink slips.

"There is a multiplier effect. When you eliminate a public-sector job, 2.4 jobs are lost."

Deluna Castro estimates that the total of public and private jobs lost under the state House budget proposal would be about 23,000. Add to that the school district positions being defunded and she says the final cost to the economy could be 263,000 lost jobs.

The Texas multiplier effect has been well-researched, with Castro pointing out that it is commonly used to argue in favor of business tax incentives - but is rarely examined when jobs are lost. She adds that another consideration in the budget debate and state layoffs has to do with the kinds of positions that would be eliminated.

"The state is a huge contributor to the economy through health care and through schools, both of which are the largest employers - at least, in most communities."

Some of the jobs the budget proposals target are positions that are currently not filled, so the multiplier effect may not be valid for those cases.

Deb Courson, Public News Service - TX