At the local level, Scott Walker’s victory in Wisconsin has shined a bright light on the role public employees – and benefits and pensions – play in state budget deficits.  The number of public employees has dropped in Wisconsin after Walker’s reforms. And it’s dropped in other states too.

But – and here’s the rub for President Obama – those same drops in public sector employment are contributing to the tepid job creation that’s standing in the way of his reelection.

It was actually the public, not the private, sector that shed thousands of jobs in May. While private businesses hired 82,000 people last month, federal, state and local governments wiped 13,000 employees from the payroll, according to Labor Department data.

“The government is actually contributing to the slow recovery,” said Scott Brown, the chief economist at the Florida-based financial firm Raymond James Associates.

Brown said that if it were not for the “drag” of this public sector job loss, the economy would likely be growing a full percentage point faster, with GDP growing at 3 percent rather than at 2 percent.

“That would help mop up the jobs lost during the downturn,” he said. “Factor in the drag from government and we are growing at a pace that’s roughly enough to absorb the growth in population but not fast enough to make up much of the ground lost.”

But conservatives argue that cutting the government workforce, and thus the government spending needed to sustain it, gives the private sector more room to flourish.

“Any of the resources the government spends, it’s taking from the private sector,” said James Sherk, a senior policy analyst in labor economics at the conservative Heritage Foundation. “If the government takes fewer resources, then there’s more in the private sector for the private sector to invest.”

The vast majority of the public sector job losses have come at the state and local level, where balanced budget requirements coupled with plummeting tax revenues have caused many states to parse back the payrolls.

Since Obama took office, 636,000 state and local jobs have been cut. In 2011 alone, 113,000 jobs were cut in local schools, 68,000 jobs were cut in local government administration, and 78,000 jobs were cut in state government administration, according to a Commerce Department report.

“It’s the public sector that’s the thing contributing to that entire overall decline of jobs since he took office,” said Heidi Shierholz, a labor market economist at the left-leaning Economic Policy Institute. “It just wipes out a huge share of the job growth.”

But while state and local jobs evaporated, Labor Department statistics show that the federal government , not counting the postal service, has grown by 143,000 employees during Obama’s tenure, a fact that Obama’s Republican rival Mitt Romney is quick to criticize.

“That stimulus he put in place — it didn’t help private sector jobs, it helped preserve government jobs,” Romney said during a campaign event in Colorado last week. “And the one place we should have cut back was on government jobs. We have 145,000 more government workers under this president. Let’s send them home and put you back to work.”

During Romney’s tenure as Massachusetts governor from 2003 to 2007, he oversaw a oversaw a similar increase in the public sector, with the number of state government employees increasing 5.5 percent during his term, according to the Massachusetts Office of Labor and Workforce Development.

Looking solely at the increase in non-postal-service federal employees during Obama’s tenure, the president has overseen a 5.1 percent increase in size of the federal workforce.

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WASHINGTON (Reuters) – It takes a lot to jolt the U.S. Congress into action, especially in an election year when partisanship runs highest, and the dismal May jobs report apparently is not enough.

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Friday’s employment data – described by investors as “awful,” “horrid” and “ugly” – marked the third straight month of slowing job growth.

But it is not spurring Congress to accelerate work toward a grand fiscal bargain. Washington’s tax and budget deadlock persists, despite hopes that an early deal would give businesses certainty over tax rates and halt automatic government spending cuts that could sap growth, according to lawmakers and aides interviewed on Monday.

Nor has the jobs data, which showed the U.S. unemployment rate rising for the first time in nearly a year, caused Republicans and Democrats to soften their differences over a long-delayed transportation construction bill that could help create a slew of new jobs.

Instead, lawmakers were sticking to their plan of letting the November 6 elections decide which party should shape the country’s budget and tax policy, leaving it until after that vote to pass major legislation in a mad-dash to December 31.

Thus, Democrats and Republicans seemed content on Monday to dig deeper into partisan positions and blame each other for the U.S. jobs malaise.

“Republicans have acted with urgency on jobs, passing nearly 30 bills that would help encourage economic growth and job creation,” said Kevin Smith, a spokesman for Republican House of Representatives Speaker John Boehner. “Unfortunately, these jobs bills are gathering dust in the Democratic-controlled Senate.”

Democratic Representative Allyson Schwartz shot back: “Republicans have chosen to pass bills that are basically campaign rhetoric that they know are going nowhere. That’s not getting us where we need to go to help Americans find jobs.”

The May jobs data released on Friday showed employment growth slowing to a paltry 69,000 jobs – less than half of what economists had forecast.

President Barack Obama, trying to contain the damage to his re-election hopes, demanded Congress act on his jobs “to-do list,” which includes tax credits for small businesses and federal aid to help states prevent layoffs of teachers, firefighters and other public employees.

Analysts said Obama can expect little help from lawmakers on these plans, which would likely do little to change the jobs outlook in the six-month run-up to the election anyway.

“The odds are against anything before the election,” said Greg Valliere, chief political strategist at the Potomac Research Group, a private firm that tracks Washington for institutional investors.

HANGING ONTO FISCAL CLIFF

Individual tax cuts enacted under former President George W. Bush are set to expire on December 31, and days later, automatic spending cuts arranged in last year’s debt limit deal are due to hit in a series of deadlines dubbed the “fiscal cliff.”

The Congressional Budget Office warned last month that these tax hikes and spending cuts would slam the U.S. economy back into recession in the first half of 2013.

To avoid this, lawmakers are trying to lay the groundwork for a deal that also could include broad tax reform.

But Republicans and Democrats are far apart on key demands. House Republicans plan to vote this month to extend all current tax rates into next year, but the effort is expected to stall in the Senate, where Democrats want tax rates on the wealthy to rise.

Democrats demanded that new tax revenues be part of any deficit reduction and tax reform deal, while Republicans demand major cuts in so-called entitlements such as the Medicare and Medicaid health care programs for the elderly and the poor.

In fact, these positions form the basis of key campaign themes for each side – for Republicans, to slash Washington spending and lower all tax rates, and for Democrats, to preserve Medicare benefits while asking the wealthy to shoulder a greater share of the tax burden.

“All this does is cement them into their positions,” Steve Bell, an analyst with the Bipartisan Policy Center, said of the May jobs data.

For lawmakers haggling over a transportation bill that could create hundreds of thousands of construction jobs, the story is similar. Democratic congressional aides said the jobs data shows the need for quick passage of a bill without controversial provisions that could slow it down, such as the Republican plan to force approval of TransCanada Corp’s Keystone XL oil pipeline.

Republican aides insisted that it shows the need to pass Keystone because they say it would create thousands of jobs and help boost the economy.

Things could change if the U.S. jobs picture continues to worsen over the summer, increasing pressure on Obama to show more positive action to generate jobs and economic certainty.

So far though, neither side is hinting at concessions.

A Democratic aide, blaming Republicans for failing to pass any of Obama’s jobs initiatives over the past two years, said: “It makes you wonder if they are rooting and cheering for bad job reports leading up to the election.”

Ryan Loskarn, chief of staff to Republican Senator Lamar Alexander, blamed the dismal jobs report on government takeovers, regulation, record federal budget deficits and a threat of tax increases during Obama’s tenure.

“They ought to stop doubling down on bad ideas that make it harder to create jobs,” Loskarn told Reuters.

(Additional reporting by Roberta Rampton, Richard Cowan, Donna Smith and Thomas Ferraro; Editing by Vicki Allen)

(c) Copyright Thomson Reuters 2012. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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