Economist estimates Dunleavy budget would eliminate 12,800 Alaska jobs

Net job losses from the budget cuts proposed by Gov. Mike Dunleavy could reach 12,800 in the short term, an economist at the University of Alaska Anchorage estimates.

He said his main takeaway so far is that the job losses would equal or exceed those of the past three years of recession in Alaska.

This does not take into account the social impact of doubling class sizes in public schools, eliminating major programs at the University of Alaska, ending the state ferry system or endangering the future of community hospitals.

Mouhcine Guettabi, an associate professor of economics at the UAA Institute of Social and Economic Research, made some rough calculations about the Dunleavy budget to try to put it in context. He said it was not a formal study, but a first look at what might happen.

Here is an edited version of what he posted on Twitter:

Here are some notes for those who are trying to sort out the combined effects of the higher Permanent Fund dividends and the reduction in government spending. Of course, many caveats apply as we do not know how the actual cuts will be implemented or their actual size.

Using the statutory formula, the PFDs for this year should be a little more than $2,900. That is at least $1,100 more than the PFDs that residents would have received under the Gov. Bill Walker plan.

Additionally, the first payback dividends will be paid which should be about $1,061 per person. If we assume that 615,000 people receive these PFDs, then people will receive $1.329 billion dollars.

If we average the high and low options from our 2016 study, “Short-run economic impacts of Alaska fiscal options,” we would conclude that for every $100 million in additional PFD distributions, there would be 725 additional jobs in the short run.

Taking this information together, 9,635 jobs would be added in the short run.

A couple of things are worth explaining. The short term stimulus from the PFD depends on whether people actually spend the money. If the anxiety results in people not spending these higher distributions, then short term impacts would be lower. Also, some of our most recent work (not published yet) shows that the effects are concentrated in the three months post PFDs.

Now let's turn to the cuts. I am going to again rely on the 2016 study and assume that there are $1.6 billion in state cuts, and a loss of $500 million in federal match (probably too low).

If we average across three options in our original analysis—layoffs, broad based cuts, and pay cuts—then we would conclude that every $100 million dollars cut would result in 1,086 jobs. The $1.6 billion results in 17,378 jobs lost. The $500 million in federal funding would result in about 5,000 jobs lost.

If we put everything together, the added short term stimulus from the PFDs and the job losses from the state cuts and loss of federal funding, we would conclude that the statewide losses would be 12,742.

Of course these are estimates.

I think the main takeaway is that the losses would be equal or larger to the losses from all three years of the current recession. That would mean the state could potentially lose more than 25,000 jobs if we combine the recession-induced losses and those as a result of the cuts. This second phase of the recession could spread through the housing market if/when we see outmigration.

The other important thing is while understanding these losses is important, I think it is secondary to medium and long term considerations.

Guettabi said that the medium and long-term considerations are more complicated and uncertain, as the impact on the housing market, business investment and whether more people chose to leave Alaska could make a dramatic difference in the future course of the economy. He hasn’t analyzed that yet.

Thousands more people without jobs would translate into thousands of decisions about where people can afford to live and why, increasing the chances of more people leaving Alaska.

The Dunleavy administration has yet to provide any analysis of its proposed budget cuts, so Guettabi’s preliminary take is both valuable and alarming.

Dermot Cole3 Comments