Will less federal spending really mean fewer jobs?

Conventional wisdom holds that federal budget cuts lead to less spending on contracts and, therefore, to job declines. Is that really true?

On Capitol Hill and well beyond the confines of Washington, government contracting executives are taking their concerns to Congress – and employees are fretting within their offices and homes – about the “doomsday” prospects of sequestration. But according to one study, their fears may be off-base.

The sweeping budget cuts would slash more than $1 trillion from government budgets, and contractors are bracing for impact and preparing for job losses – especially in the defense industry as the Defense Department will bear a significant portion of the cuts. However, historically speaking, the top five defense contractors actually employed more people when the DOD budget was smaller – even smaller than what would emerge after sequestration’s effects.

According to the Project on Government Oversight, between 2006 and 2011 “total employment at the companies declined even as the total federal contract dollars awarded to the firms rose.”

The companies included in the study were Lockheed Martin, Boeing, General Dynamics, Northrop Grumman and Raytheon.

The report noted that according to Federal Procurement Data System information, the amount of money awarded to companies in government contracts increased from $91 billion in fiscal 2006 to $113 billion in fiscal 2011. Even after adjusting for inflation, it’s still an increase of more than 10 percent.

Despite the increases, job creation hasn’t matched up.

At Lockheed, contract awards have increased by 32 percent since 2006 but employment has shrunk, with 17,000 fewer jobs – a 12 percent decrease. At Raytheon, contract values have grown more than 50 percent, but employment has declined by 11 percent, according to POGO.

A spokesperson for Raytheon told the watchdog organization that the figures are “a clear indication of the company’s productivity.”

But it’s not clear that’s the case. And even if it is, it's not clear that it's the sole reason behind the incongruent figures. POGO is exploring a few different potential explanations, according to Ben Freeman, who wrote the blog post.

One possibility POGO is investigating is the level of compensation for industry executives; for example, Lockheed CEO Robert Stevens had total compensation valued at $25.4 million in 2011, according to public filings.

Another is the increasing use of sub-contractors, Freeman said.

It’s also possible insourcing may have an impact on the shrinking employment numbers in the defense industrial base.

“If they’re cutting people, it’s possible they’re being sourced and lumped in with the Defense Department. But if that’s true, we should be seeing less money going into government contractors than into DOD. We aren’t seeing that,” Freeman said.

In his research, company spokespeople often said the decreasing job numbers are the results of efficiency initiatives, Freeman added.

“A lot of them said, ‘Our main customer is going through [efficiency efforts], so we have to try to slim down too,” he said.

The POGO report did acknowledge the findings are not uniform. For example, Boeing and General Dynamics both increased the number of employees between 2006 and 2011; General Dynamics was the only firm studied that both earned more contracting money and added jobs.

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