Checking the Pentagon's job loss math
November 3rd, 2011
03:15 PM ET

Checking the Pentagon's job loss math

By CNN National Security Producer Jennifer Rizzo

The Pentagon has painted a doomsday scenario of a percentage point increase in unemployment if further cuts are enacted by Congress, but some analysts are questioning the math.

The figure, first cited by Secretary of Defense Leon Panetta back in September, assumes 1.5 million Americans would lose there jobs, adding a percentage point increase in the unemployment rate, if $1 trillion is cut from its budget.

The Defense Department is already required to cut $400 billion from its budget as part of an agreement that allowed President Barack 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. The automatic cuts are referred to as sequestration.

The numbers of jobs lost touted by Pentagon officials "seems like a high figure," says Heidi Garrett-Peltier of the Political Economy Research Institute at the University of Massachusetts.

The PERI analysis projects at most 1.16 million jobs will be lost and the unemployment rate would rise from 9.1 percent to 9.8 percent. While still a considerable amount, it does not add up to the full percentage point jump that the Defense Department predicts, Garrett-Peltier explains.

PERI estimates cuts in direct Defense Department jobs, indirect supplier and contractor jobs, and local business layoffs in communities where defense contractors have their facilities, as does the Pentagon's own estimate.

"Our analysis shows that directly and indirectly, 8.9 jobs are supported for each $1 million in military spending (public and private sector), and therefore $1 trillion in cuts would mean a job reduction of 890,000," said Garrett-Peltier. "If indeed the job losses amounted to 1.5 million, then the unemployment rate would rise by one percentage point. But 1.5 million jobs lost seems like a high figure"

William Hartung a defense budget analyst at the Center for International Policy agrees and thinks the Defense Department may be "front-loading" the numbers, meaning they are planning for much larger cuts in the first few years than would be likely.

"It is extremely unlikely that anything like $100 billion in reductions, one-tenth of the $1 trillion in possible cuts if sequestration kicks in, would happen in 2012 or 2013, the first two years covered by their estimate," said Hartung.

"The jobs impact will increase in later years, probably reaching peak level in 2015 or 2016, but by then unemployment may be lower, and therefore more of the displaced workers may find jobs." said Hartung.

Hartung says a more realistic figure would be a cut of $20 to $30 billion in 2012, which by the Pentagon's own method would probably yield 300,000 to 450,000 in job losses.

Pentagon spokesman George Little defended the estimate and said the Pentagon was not over-dramatizing consequences of cuts

"I think it is telling that it is not only the secretary but the military leadership of this department using words like 'devastating' and 'Doomsday Scenario,'" Pentagon spokesman, George Little, said Wednesday morning at the off-camera question and answer session with journalists.

After weeks of prodding the Defense Department on how they came up with their numbers the Pentagon released some of their methodology on Wednesday.

The Defense Department says it worked with Interindustry Forecasting at the University of Maryland to come up with it's figures, using a model that Garrett-Peltier says would be appropriate for this type of analysis.

But the Pentagon analysis implies that a 13.5% reduction in spending would result in a 25% reduction in employment, Garrett-Peltier said.

On why she thinks the numbers are high the professor said she didn't have enough information but could speculate that the assumptions or multipliers built into the model were off.

"The big discrepancy for me is how the Pentagon can claim that six million jobs are supported economy-wide by defense spending, but that 1.5 million jobs would be lost through sequestration," she said.

Multipliers measure the ripple effect flowing from the loss of direct defense jobs.

"Direct jobs building a plane have a ripple effect because there are jobs at companies supplying components, and in other sectors based on workers spending their wages (restaurants, for example)," said Hartung. "For example, the assumption might be that two jobs are created for every direct job (a multiplier of two). So, if the multiplier is too high, the number of jobs estimated could be greatly exaggerated."

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  25. Charles

    I have a question that has been really hard for me to find an answer to. In this article they refer to defense jobs are both private and public sector. My question is why would all of the jobs not be considered public sector since they would not exist if the government did not spend the money? Are the public sector jobs that defense spending creates within the Department of Defense? Are the private sector jobs ones that go the Boeing? Raytheon, GE, etc.? If that is the case this gets real fuzzy. Jobs that are created by government spending that other wise would not exist seems to go against those that continually insist that the government cannot create private sector jobs. As I said this is a little bit fuzzy.

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  27. 6000dollartoiletseats

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  28. Michael

    "The figure, first cited by Secretary of Defense Leon Panetta back in September, assumes 1.5 million Americans would lose there jobs, adding a percentage point increase in the unemployment rate, if $1 trillion is cut from its budget."

    You would hope that CNN's National Security producer would know the difference between "their, there and they're".

    Difficult to read an article that has an error as glaring as this in the second paragraph. Please ensure your grammar checker is both enabled and operational before submitting your next post. Thank you.

    November 4, 2011 at 3:25 pm | Reply
  29. Cody

    And the jobs lost will be the fault of Republican's demanding the spending cuts.

    November 4, 2011 at 11:42 am | Reply
  30. Dan Gallardo

    Now is the time to really evaluate the need for america to defend the world from "terrorists".We do not need such expensive weapon systems to fight terrorists. We need smaller fighting units that should be allowed to hit hard and fast when needed and economically destablize that region. Arm local opposition groups and let them bleed their own region dry. We could use the money we borrow to fund these those kind of actions here at home to really shore up the governments obligation to our own people instead of trying to make the rest of the world America.

    November 4, 2011 at 11:33 am | Reply
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      I wonder what shakespear has to do with all this.

      November 4, 2011 at 10:31 am | Reply
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    Seriously, if CNN wishes to be taken seriously, they need to hire serious journalists, college educated is a plus. The grammar and spelling in this article is horrifying. On topic: Defense spending can be cut, but only if the Pentagon closes all those black hole slush funds and actually uses the money for defense. By the way, politicians seriously think it is better to cut back on defending ourselves from terrorism than to cut social security, which pays for old people that will be DEAD in ten years?

    November 3, 2011 at 10:11 pm | Reply
  34. focusonjobs1

    So Government spending can create jobs for the military and civilian contractors but nowhere else?

    November 3, 2011 at 9:20 pm | Reply
  35. idb

    Interestingly the amount of contractors, suppliers and businesses that are dependent on the military as their customer is not taken into account. Each military job creates about five others.

    November 3, 2011 at 8:32 pm | Reply
    • durundal

      you were not paying attention: it was factored into the analysis, and also accounted for using multiplier effects to measure how the added income ripples through the economy. Incidentally, the 8.9 jobs per million created in expenditures is in fact a lower estimate than if we were to spend that same dollar amount on public infrastructure (10+)...

      November 4, 2011 at 8:54 am | Reply
  36. diogenes

    1.16 million is a small number? There are people who dedicated 4 years of college and up to decades of their lives aiding in protecting our way of life in America. Now they could be shat out so that we can pay for illegals and welfare mavins who did not work toward bettering their life. Guess they will have to take up the arms they designed and remove the idiots from both parties or have their lives destroyed.

    November 3, 2011 at 8:18 pm | Reply
    • durundal

      I can understand your frustration, but it isnt illegals that are causing any of this. Think about what you are saying and how that could even remotely be plausible (migrant worker displacing a nuke engineer....). What IS more plausible is the economy restructuring itself to better use scarce resources according to a change in political and global climte (not the warming kind). Incidentally there have been a number studies assessing the cost of allowing illegals to operate in the us, and they find them to be a net positive force (create more output than they do consume services).

      November 4, 2011 at 9:02 am | Reply

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