Today, the Associated Press reports on an extreme example of this phenomenon.
This past decade, the government sector has been one of the few economic sectors to exhibit strong growth. This phenomenon will severely cut into that. This will further reduce consumption since these workers are being forced to take time off without pay. In other instances, states will surely lay people off and add to the unemployment rolls.
PROVIDENCE, R.I. – Rhode Island will shut down its state government for 12 days and trim millions of dollars in funding for local governments under a plan Gov. Don Carcieri proposed Monday to balance a budget hammered by surging unemployment and plummeting tax revenue.
The shutdown would force 81 percent of the roughly 13,550-member state work force, excluding its college system, to stay home a dozen days without pay before the start of the new fiscal year in July.
The closures come as the worst recession in decades has eliminated hundreds of millions of dollars in tax collections and pushed unemployment to 12.7 percent, the second-highest jobless rate in the nation behind Michigan.
Next year we could see an even greater reduction in tax revenues and more budget cuts. If Rhode Island is shutting down state government for 12 days this year, where will it be next year?