The Impact of Decreased Defense Spending on Employment in the United States

Abstract

The combined pressures of reduced East-West tensions and large budget deficits in the United States have led to the enactment of reduced defense budgets. Future reductions in spending could be 25 percent less in real terms from FY 1990 levels. These decreases will affect employment of active-duty military personnel, DoD civilians, and workers in private sector defense industries. If the reductions in force structure take place at a controlled rate, the necessary cuts among active-duty forces and DoD civilians should be manageable through attrition and reduced accessions. The backlog of authorizations and foreign sales will slow any industrial downturn in the defense sector. The rate and magnitude of the defense spending decreases are smaller than in previous postwar cutbacks, and much of the decrease has already taken place since the peak of authorizations in FY 1985. Although certain individuals will be affected by reductions in defense spending, the overall impact upon the economy will be similar to other structural unemployment. Current job training and economic recovery legislation is sufficient to handle this decrease in spending and the transfer of individuals to the private sector. This analysis concludes that these cutbacks will not significantly affect the macroeconomy of the United States, although certain localities, occupations, and industries may encounter short-term difficulties.