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Hiring Freeze May Chill Hampton Roads Economic Growth

Brendan O'Hallarn

Hampton Roads, still struggling to regain the jobs lost during the Great Recession of 2007-09, can ill afford anything that will slow its ongoing recovery.

But that's probably what will happen as a result of President Donald Trump's executive order freezing the hiring of federal workers, two Old Dominion University economists say.

The executive order, intended to curtail the growth in government spending, says that "no vacant positions existing at noon on January 22, 2017, may be filled and no new positions may be created, except in limited circumstances." President Trump also directed the head of the Office of Personnel Management to recommend a long-term plan to reduce the size of the federal workforce by attrition.

Bob McNab, professor of economics and associate director of Old Dominion's Center for Economic Analysis and Policy, said Trump is not the first chief executive who has sought to limit federal hiring to rein in costs. However, "the prospect of a reduced federal workforce will hamper growth in Hampton Roads and the Commonwealth of Virginia," he said.

Putting the brakes on hiring or failing to replace departed federal employees, he said, is bound to affect the local economy; about 40 percent of its gross domestic product is connected to federal spending and corresponding spinoff jobs. Vinod Agarwal, professor of economics and director of the University's Economic Forecasting Project, said the action also might prompt many federal workers nearing retirement age to accelerate their departure.

If, as the order demands, they are not replaced by new workers or contract employees, "we estimate that the Commonwealth will lose $420 million in salaries each year over the next decade, while Hampton Roads will lose about $140 million a year," Agarwal said.

Accounting for the economic activity associated with these position, Agarwal said the net effect could be an annual loss of $900 million for the Virginia economy, and $300 million for Hampton Roads.

"The federal government, like it or not, plays a significant role in the economies of Hampton Roads and Virginia. Virginia in Fiscal Year 2015 had the second largest number of federal employees, behind only California and followed closely by the District of Columbia," Agarwal said.

In Hampton Roads, McNab and Agarwal estimate that the 46,000-plus federal workers earned about $4 billion a year in 2015 - almost 4 percent of all economic activity in the region. "The importance of the federal workforce, even in times of robust job creation, cannot be understated," Agarwal said.

McNab added that hiring freezes don't always result in the expected cost savings.

The Government Accountability Office concluded in 1982 that hiring freezes instituted by Presidents Jimmy Carter and Ronald Reagan were "not an effective means of controlling federal employment." That was because the full-time workers were frequently replaced by contract employees.

In addition, the GAO suggested that other forced work slowdowns, such as sequestration in 2013, reduced or delayed some public services essential to the smooth operation of government, adding other costs.

"It is reasonable to conclude that a blanket freeze, rather than one targeting programs that can no longer justify their existence, will likely create inefficiencies in what many believe is an already inefficient system of government," McNab said.

While an effort to reduce the size and non-essential functions of government is an understandable goal, its net effect is likely to be negative, especially locally.

"It will leave key positions unfilled, increase inefficiencies because of the inability to attract, retain and compensate skilled personnel, and result in an older federal workforce," McNab said.

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