Employment Effects of the Rise and Fall in Defense Spending

By Saunders, Norman C. | Monthly Labor Review, April 1993 | Go to article overview

Employment Effects of the Rise and Fall in Defense Spending


Saunders, Norman C., Monthly Labor Review


Proposed defense spending cutbacks lead to a reduced supply of jobs in both the government and private sectors of the economy

Purchases of goods and services for defense activities (in 1987 dollars) fell to $180 billion in 1976, the trough of the defense spending drawdown following the Vietnam conflict.[1] After that, defense spending began to increase during the 1970's and accelerated during the 1980's, peaking at $292.1 billion in 1987, up from 5.3 percent of gross domestic product in 1976 to almost 6.5 percent by 1987.

Accompanying the spending surge was an increase in jobs generated by that spending. Over the 1977-87 period, the lion's share of the new jobs were in the private sector of the economy, as employment related to defense expenditures rose by nearly 2.1 million jobs in response to the increased spending on more advanced hardware and on the research and development which went into the creation of that new hardware. In addition, civilian employment in the Defense Department rose by 160,000 jobs, and the level of the Armed Forces increased by 93,000.

In the late 1980's, however, the changed world political situation, which signaled a decrease in the potential threat to peace from Soviet Bloc countries, combined with increasing concern over the burgeoning Federal budget deficit, led to plans to begin cutting back on defense spending and on military force levels. Budget plans were developed which would lead to annual reductions in defense spending in real terms through 1997, accompanied by cutbacks in military force levels over that same span.

Under the plans developed at that time, it was proposed that defense spending should decline, in real terms, to $206 billion, or $86 billion lower than the 1987 peak.2 Military force levels should drop under the proposal by 500,000, and civilian defense-related Federal Government employment should also decline, by 200,000 jobs, between 1987 and 1997. Further cuts proposed in the 1993 State of the Union address would result in projected real defense spending of $192 billion in 1997, a further $14 billion cut below the proposed level of just 1 year earlier, and military force levels at 1.4 million, an additional 200,000 below the level proposed by the previous administration? It was estimated that 1.8 million defense-related jobs in the private sector would be lost as a result of the proposed cuts in spending between 1987 and 1997.4

The purpose of this article is to examine in more detail the decline in employment requirements in three areas (Armed Forces, Department of Defense civilian jobs, and defense-related private sector jobs), determine how much in the way of job cuts has already been seen in the economy and how much still lies ahead of us, and to look carefully at industries and occupations that would most likely be affected by the proposed cutbacks.

Where the losses are

As noted earlier, purchases of goods and services for national defense rose sharply between 1977 and 1987,5 jumping from 5.1 percent of gross domestic product (GDP) in 1977 to almost 6.5 percent a decade later. (See table 1.) Direct employment by the Defense Department---civilian staff and uniformed Armed Forces---mcreased during this decade at a much slower rate than overall defense spending. The implication of this is that the major growth in spending was for the development of new weapons and defensive systems, rather than for increases in the size of the Armed Forces. In fact, until the current proposals to reduce the size of the Armed Forces, the level of uniformed personnel has remained remarkably fixed since the end of World War II. There were runups during the Korean War and during the Vietnam conflict, but levels of the Armed Forces returned to the more or less fixed number of individuals after each of these military actions was completed.

As noted, the high point of real defense spending was in 1987, when real purchases of defense goods and services reached $292 billion, 6. …

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