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Defense-related employment and spending, 1996-2006

Monthly Labor Review, July, 1998 by Allison Thomson

While the post-Cold War contractions in defense spending and employment are easing, reductions in defense spending will continue to affect employment across all industries and occupations through 2006

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Following the end of World War II, the Cold War and its accompanying arms race provided the U.S. economy with a period of relatively constant defense spending and defense-related employment growth. Real defense spending retrenched slightly in the years following the Vietnam War to a low of $266.4 billion in 1977, accounting for 6.2 percent of gross domestic product (GDP).(1) Despite the negotiations and subsequent arms limitation treaties during the 1970s and 1980s, tensions remained between the Soviet Union and its sphere of influence and the United States and its NATO allies. Under the philosophy that the best deterrent against aggression is a strong defense, the U.S. Government quickly escalated defense spending in the 1980s. By 1987, U.S. defense spending reached a post-Vietnam War high of $409.2 billion, or 7.2 percent of GDP. In 1988, the Cold War ended as the winds of change felled the Berlin Wall. With renewed hopes for world peace, nearly 7 million people, roughly 6 percent of the U.S. labor force, whose jobs were tied to defense spending, were suddenly faced with a future of uncertainty.(2)

The 1987-96 period was marked by severe cuts in defense-related spending and employment. These reductions were felt across most industries and occupations in the economy. Real defense spending fell by $94.3 billion to 4.6 percent of GDP, and defense-related employment in the United States retracted by 2.5 million to 3.4 percent of the labor force.(3) In 1996, defense-related employment was responsible for 255,000 fewer jobs than the previous post-Vietnam War low in 1977. Of the decline in employment, 42 percent, or 1 million jobs, was in Government--including the Armed Forces, and civilians in the Department of Defense and nondefense agencies. The remainder of the decline in employment (1.5 million jobs) occurred among workers in the private sector. The greatest reductions in the private sector occurred in direct defense-related employment. A significant proportion of the decline in the private sector, 42.5 percent, or 605,000 jobs from 1987-96, is attributed to indirect defense-related employment. These reductions in defense-related spending and employment left few areas of the labor market untouched.

The drastic reductions in defense spending and related employment are beginning to show signs of slowing. BLS projects that defense-related employment will recede from 4.5 million jobs in 1996 to 3.7 million by 2002 and to 3.6 million by 2006. (See table 1.) These estimates are based on projected reductions in real defense purchases of goods and services from $314.9 billion in 1996 to $265.4 billion in 2002, and to $257.3 billion, or 3.0 percent of GDP, by 2006.(4) The rate at which real defense spending is projected to decline between 1996 through 2006 is significantly slower than the rate at which it declined during the previous decade. The total reduction in defense spending between the post-Vietnam War high in 1987 and the year 2006 is expected to amount to $151.9 billion. By 1996, $94.3 billion in cuts had transpired, leaving an additional reduction of $57.6 billion in defense spending through 2006. The estimates of real defense spending are based on Defense Department projections through 2002, and extended to 2006 based on BLS projections.(5) Employment attributed to these spending levels is projected to retract by 3.35 million jobs between 1987 and 2006. By 1996, nearly three-fourths of these job cutbacks had already taken place, leaving an expected reduction of another 897,000 jobs through 2006.(6)

[TABULAR DATA 1 NOT REPRODUCIBLE IN ASCII]

The impact of reduced defense spending on overall employment is put in perspective when compared with the 1977-87 defense buildup. During that period, real defense spending increased rapidly by $142.8 billion, generating 2.2 million additional jobs. More than 283,000 jobs were created in the public sector, while an astounding 1.9 million jobs were produced in the private sector. These gains, shown in chart 1, were erased between 1987 and 1996 in the public sector--among the Armed Forces and civilian defense and nondefense Government workers. The negative impact of defense cutbacks on employment in the private sector over the same period was smaller than the increases experienced during the 1977-87 surge in defense spending. However, defense-related employment in the private sector is still expected to fall throughout the projected 1996-2006 period, and to drop below its 1977 post-Vietnam War low by 2002.(7)

[Chart 1 OMITTED]

The reductions in defense-related spending from 1996 through 2006 are expected to affect employment in the defense community dissimilarly. In the public sector, employment among the Armed Forces and civilians is projected to decline at a decreasing rate until it achieves a relatively stable level by 2002. In the private sector, direct defense-related employment is expected to continue declining, albeit at a decreasing rate, throughout the remainder of the projection period.(8)

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Defense-related employment and spending, 1996-2006

Monthly Labor Review, July, 1998 by Allison Thomson

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