The employment recovery in the midst of the pandemic has seen a positive boost from government hiring. However, it appears that this trend may be coming to an end.

December Job Gains

According to the latest labor market data from the Bureau of Labor Statistics released on Friday, government employment saw a significant increase of 52,000 jobs in December. Throughout 2023, the public sector added an average of 56,000 jobs per month, which is more than double the average gain of 23,000 jobs in 2022 and surpasses the pre-pandemic levels.

Shift in Government Hiring

While the federal government initially played a major role in last year’s strong hiring performance, the focus has now shifted towards state and local governments. In December, local government hiring accounted for approximately 37,000 job gains, while the federal government hired 7,000 workers.

Potential Slowdown Ahead

Aaron Terrazas, Glassdoor’s chief economist, expects government hiring to moderate in the early months of this year. He notes signs of budgetary distress at the state and local level, which often leads to a decrease in hiring. These budgetary concerns may take some time to impact hiring decisions but are likely to occur as the effects of federal pandemic-era boosts fade away.

Outlook for the Future

José Torres, senior economist at Interactive Brokers, believes that the current trend of job gains driven by noncyclical sectors such as government, education, and health services is temporary. These sectors are typically unaffected by interest rates and remain relatively stable regardless of economic conditions. However, Torres anticipates a shift away from this trend in the near future.

As we enter a new phase of the employment recovery, it’s essential to keep a close eye on the evolving landscape of government hiring and its impact on job growth.

Education Job Gains Predicted to Diminish

Education job gains at the state and local level are expected to fade in the near future, according to an expert. Amid the Covid-19 pandemic, Congress set aside $277 billion in relief for the education stabilization fund. While it took some time for the money to flow through the system, it ultimately aided state education departments and school districts in creating new positions and filling open ones.

However, as of now, the majority of these funds—$263 billion to be precise—have already been allocated, says the Education Department. Consequently, the hiring surge in this sector is unlikely to persist. In fact, school districts, municipalities, and counties might even scale back their payrolls over the next year, warns the expert.

Throughout much of the pandemic recovery, state and local governments struggled to compete with the private sector for employees. Recently, though, with the private sector reducing job opportunities and slowing down recruitment efforts, more job openings have emerged in the public sector.

While jobs in the public sector have typically been lower paid and part-time in nature, there has been an increase in part-time employment as a result, notes James Knightley, ING’s chief international economist.

In addition to slower growth in public-sector employment, the overall labor market in the United States is projected to experience a gradual slowdown by mid-year, with an estimated monthly job gain of around 120,000, according to Torres. However, due to the strong financial position of many corporations, mass layoffs are not expected.

“Companies are not looking to downsize,” says Torres.

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