Defense cuts: The jobs numbers game
Source: Defense Department
September 22nd, 2011
10:44 AM ET

Defense cuts: The jobs numbers game

By CNN National Security Producer Jennifer Rizzo

Opponents of slashing the defense budget are shouting about the ripple effect that would be felt in the job market, arguing that Pentagon cuts equal job cuts. But how many jobs are really at stake when hundreds of billions of dollars are axed? That's where the numbers get fuzzy.

The Defense Department's $680 billion budget pays for over 3.1 million employees, both military and civilian. Another 3 million people are employed by the defense industry both directly, making things like weapons, and indirectly, such as working in local businesses supported by a contractor's location in a town, according to various sources. It's these big money and job figures that make lawmakers fight for defense contracts in their districts and defense contractors lobby for their contracts.

The Defense Department is already required to cut $400 billion from its budget as part of an agreement that allowed President Obama to raise the debt ceiling. The same deal created a congressional "super committee" tasked to find another $1.5 trillion in government savings over the next decade.

If the commission cannot come to agreement on where the cuts should come from by the end of November, another $600 billion would automatically be axed from the defense budget.

An internal Pentagon economic analysis projects a 1% increase in the national unemployment rate if the automatic "sequestration trigger" were to take effect, Pentagon press secretary George Little said.

And in another estimate, at least 360,000 people employed by the aerospace and defense industry would lose their jobs if $1 trillion is ultimately slashed, according to a calculation by the major defense industry trade association, the Aerospace Industries Association.

"Our position is no more. No more," said Marion Blakey, CEO of the association. "We do believe at this point with the kind of cut that has already been taken through the budget control act, that defense has been cut into the bone and we cannot have that continue."

Blakey said the group is reaching out to every member of Congress it can, including those on the super committee.

"In these discussions we're trying to make sure they understand that if you go into that trough and you go deep down, like we did back in the '90s, it is extremely expensive to climb back up, and sometimes you find you do not have the technology to do it," Blakey said. "I will tell you people are listening very closely."

Members of the Aerospace Industries Association's executive committee, including executives from major defense contractors like Boeing and Pratt & Whitney, met with Secretary of Defense Leon Panetta last week to discuss the potential far-reaching effects of the cuts.

In the past, Panetta has called the $600 billion in cuts a "doomsday mechanism." The nominee to be his deputy, Ashton Carter, agreed, saying the cuts would be devastating.

"So just the scale of it alone would lead us to have to consider truly draconian things," Carter told senators at his confirmation hearing last week. "Abandoning major weapons systems, furloughing civilian employees, and abruptly curtailing training because we couldn't pay for fuel, and so forth. That's the scale."

One defense analyst said hundreds of thousands of jobs could be lost.

"It seems within the realm of possible," said Todd Harrison of the Center for Strategic and Budgetary Assessments. The Department of Defense "itself is the single largest employer in the United States. More than the post office and Wal-Mart combined. There are multiple millions of contractors whose jobs are directly related to defense. As you're cutting back defense spending, ultimately that is going to trickle down to fewer jobs in industry and defense itself."

Others aren't convinced.

"It is the standing Washington game of finding any analysis you want and use it," said Pentagon spending watchdog Winslow Wheeler. "You have multiplier effects for the Burger King down by the manufacturing plant and the dry cleaner that is being supported by the revenue flowing into the community. ... If you use the secondary and tertiary jobs from transportation and education spending you can run up the numbers, too, but if you talk about direct labor jobs that the money creates, that is quite different."

Aside from job cuts, Harrison pointed to the separate issue of job creation, reasoning that cutting the budget could mean eliminating jobs that would have been created in the future.

"In some cases it is an opportunity cost," he said. "If we continued that program additional jobs would have been created, so by not continuing they will not be created. Jobs that would have been created a year of two or three years from now won't be created."

But one study suggests that while, of course, the Defense Department does create jobs, other industries are simply better at it. For instance, $1 billion spent on clean energy, health care or education would do far more for job creation than $1 billion spent by the Pentagon, a group of researchers at the University of Massachusetts at Amherst concluded.

Every billion dollars the Defense Department gets generates 11,600 jobs, their study contends, whereas that same investment would produce 17,100 in clean energy jobs, 19,600 in health care jobs and 29,100 in education jobs. Even a $1 billion tax cut would produce significantly more jobs than money spent at the Defense Department, it claims.

"In defense spending you are talking about huge overhead costs and a lot less effectiveness at creating assembly line jobs," Wheeler said.

In a hearing on the troubled Joint Strike Fighter Program, a Defense Department official told the Senate Armed Services committee that only 1.5% of the price of the F-35 fighter went to the cost of labor.

"The Fort Worth manufacturing, fabrication and assembly labor cost portion is less than 1.5% of the overall proposed aircraft price." said David Van Buren, principal deputy assistant secretary of the Air Force for acquisition.

Defense industry jobs, however, usually pay more, Harrison said, meaning less are created per a given amount of money.

"So for a given amount of government spending, defense would create a smaller number of higher paying jobs relative to other government spending that might create a larger number of lower paying jobs," he said.

With unemployment being a top issue for Americans, the "he said, she said" match on how budget cuts will effect jobs is not a surprise to Wheeler.

"What I think we need here is some objective entity to take a look at these type of issues," he said.

Sen. Jeff Merkley, D-Oregon, agrees and would like to see the Congressional Budget Office analyze the impact of the super committee's recommendations on jobs.

"He is discussing this idea with his colleagues," said Julie Edwards, Merkley's spokeswoman, "hoping to elevate jobs in the deficit conversation. As we talk to families in Oregon and families all over this country, their number one priority is jobs."

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Filed under: Defense Spending • Military • Panetta • Panetta • Pentagon • Secretary of Defense • Security Brief
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  16. TAPM

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    September 22, 2011 at 4:06 pm | Reply
    • Carmen

      Hedge funds broadly and the value guys in piruactlar are piling into the stock, both on the numbers above and I think they are betting on a regime change pop. The risk is the value story has been true for years yet the multiple has continued to drop.It is hard to believe the market puts almost a 50% premium on a dollar of profit from IBM, who are a no-growth financial engineering company.

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  17. John Boehner

    Now is the time for all true patriots to write their Congressmen and put an end to these dangerous defense cuts. We need to maintain a strong defense. As it is we only spend three times on defense as the Chinese do. And we certainly don't want them to match our capabilities. We can maintain the current level of defense spending and provide modest 3-5% annual increases by cutting domestic spending 1% per year and eliminating the marginal Food Stamp, WIC, Head Start and Medicaid programs. And remember, a good portion of the defense budget goes towards protecting the vital oil supply routes to Europe, India and China. We don't want to risk punishing American consumers by creating increased oil prices and reduced imports from these countries.

    September 22, 2011 at 3:27 pm | Reply
    • two guns

      I like the analysis of 1billion creates 29000 jobs in education vice 11000 job in defence. Now, simply send all the educators to boot camp and ARM them with assault rifles. There. Now they can protect our children and our freedom.

      December 31, 2012 at 1:04 pm | Reply
  18. LicenseToSteal

    With a budget of $680 billion per year, they need to cut $200 billion per year making it $1 trillion cut over 10 years and not the $200 billion the stupid writer of this articile could not explain correctly. Without these steep cuts, this dumbass governent is just playing games.

    September 22, 2011 at 1:37 pm | Reply
    • ohiodale

      Fine as long as they cut medicare which spends $700 billion per year by $200 billion per year also. As long as they cut discrenary spending, which is now around $650 billion per year, by $200 billion, and lets not forget social security that is also about $700 billion per year. Defense is as important and is constitionally more relevant than any of the other programs.

      September 30, 2011 at 2:19 pm | Reply
  19. Rose

    pull all illegals out of this country-concentrate on the USA-Companies that do not want to concentrate on the american
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    No social security for anyone except elderly and build a strong defense and start the draft only for american men. We are being torn down before
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      • Lee

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  20. Kilometer77

    Well there goes the TeaTard arguement that "government doesn't create jobs". Looks like lots of them are created and supported by government.
    Here in Florida, hundreds, maybe thousands will lose their jobs as the Space Shuttle program winds down.
    I wonder what trough Halliburton, Boeing and all the other cost-overrun defense contractors will feed from in the future?

    September 22, 2011 at 1:13 pm | Reply
  21. ELH37

    The Defense Department's $680 billion budget pays for over 6.1 million employees directly and indirectly both military and civilian. That works out to be $111,475 per employee...I don't know a single grunt making that kind of cash. Looks to me like our priorities are screwed up again. Still, if the total of $1.0 trillion in cuts does occur, that is factored in over 10 years and represents less than 15% of the total annual budget assuming that no annual increases were factored into the original numbers which we all know is not true. Factoring in the automatic annual increase assumptions, we are looking at an annual reduction in spending of 8%. If the military can't manage things without 8% of their budget, they are doing something terribly wrong.

    September 22, 2011 at 1:13 pm | Reply
    • Robert Puget Sound, WA much WASTE and FRAUD in the self-serving Boeing and Lockheed source in OVER 40 states; that's one hellova lot of CAMPAIGN cash flow, to insure Congress ignores the OBSCENE reality of sick and perverted big ticket weapons' programs, that CANNOT DEAL with goat herders and poppy growers.

      September 22, 2011 at 1:32 pm | Reply
      • Michele

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    • DanJ

      Why in the world would you make the assumption that the entire $680 billion goes to payroll?

      September 22, 2011 at 1:39 pm | Reply
      • scott, Philadelphia, PA

        Exactly what I was thinking. Simplified math for armchair economists. These guys may be a bigger problem than the deficit.

        September 22, 2011 at 2:36 pm |
  22. Hampel Rutledge

    This is a perfect example of poor writing effecting the message. In paragraph one the defense budget is 680 billion. In paragraph two we are going to slash 400 billion She doesn't explain that that is over ten years. On first read it looks like the defense budget will be 280 billion. The next paragraph says they may slash another 600 billion again no explaination that it is over ten years. It looks like the defense department will OWE 320 billion dollars instead of being cut to 580 billion. I read for information. This poor writing supplies confusion instead. GET IT RIGHT!

    September 22, 2011 at 1:04 pm | Reply
    • Tom

      Here's another example of poor writing: using the word "effecting" when the word "affecting" should have been used.

      September 22, 2011 at 1:15 pm | Reply
  23. eleanor fitzgerald

    How much could be saved by downsizing the for-profit or number of "soldiers of fortune" currently paid at a very handsome rate by the defense budget? It is my understanding that there has been a great proliferation of such companies in the name of Homeland Security here and abroad in 1993. Their warriors are very handsomely paid and have the best armorments. According to some reports they receive about four times as much as troops in the war zones. Over 200,000 human lives have been lost in Iraq and Afghanistan, many of whom had nothing to do with 9/11.

    September 22, 2011 at 12:33 pm | Reply
    • Robert Puget Sound, WA

      GOOD ONE, Eleanor.....our troops get paid very little, but those MERCENARY THUGS get between $250k and up! And their OVERHEAD....OUCH!!! They too, gotta support both Rubes And Demons to 'look the other way' on absurd costs.

      September 22, 2011 at 1:35 pm | Reply
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  25. Evn

    If this were China there would have been more than a few heads rolling for the fiasco that has been the American economy since 2009. We've shipped so many jobs overseas, maybe it is time we adopted their form of accountability.

    September 22, 2011 at 12:08 pm | Reply
    • Danny

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      September 22, 2011 at 3:06 pm | Reply

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