Many people have heard me state that Maryland’s economy is based on “Eds, Beds, Feds, and Meds,” and this is one of the reasons why Maryland has suffered comparatively less during this most recent recession.   However, this insulation from economic events may be coming to an end and may have a severe impact on Maryland’s economy. Maryland by virtue of geography has become the home of many federal agencies, and by virtue of its highly educated workforce Maryland has received a disproportionate share of federal funding in research, cyber-security, defense, medicine, and other areas.

While the debate in Washington rages regarding the role of government and the need to shrink it, we Marylanders should feel especially vulnerable.  The Federal government directly employs approximately 130,000 civilian or over 5% of Maryland’s labor force. Moreover, Maryland is home to eleven agencies as well as ten military installations with over 80,000 military personnel, and the state receives over 1.5 billion dollars in federal research dollars, over ten billion dollars in federal expenditures, and over twelve billion dollars in private sector contracting opportunities. Finally, numerous Maryland citizens work for the federal government in Washington, D.C. and Northern Virginia.

It has been estimated that for every federal job in Maryland, two other private sector jobs are created. These private sector jobs include IT contractors, teachers, retail clerks and other professions.

A 10% cut in federal employment could potentially result in the loss of nearly 40,000 jobs in Maryland, or about 1.6% of the total workforce.

Moreover, the federal workforce tends to be older on average and therefore will likely have a higher salary. As a result, a 10% loss in jobs will also have a disproportionate impact on Maryland’s income tax collections of those federal workers who live in Maryland.

To lessen the state’s dependency on the federal government, Maryland needs to encourage the growth of private sector jobs and companies.  There are hurdles from public policy to perception regarding Maryland’s business climate and tax rates. Hopefully, this is outweighed by our highly educated workforce. According the Department of Labor, Licensing and Regulation (DLLR), Maryland created only 4,400 net new private sector jobs between April 2010 and April 2011 (a growth rate of 0.2%), a very modest number, to say the least .

This growth rate suggests that Maryland is in a precarious position in these latest deficit and debt discussions. Maryland’s economy would perform better if the federal cuts were targeted towards entitlement programs—Medicare and Social Security, for example—rather than agencies (NIH, NIST, DoD, etc.) as cuts to entitlement programs would be felt nationwide while cuts to agencies would be more acutely felt in Maryland. While I am not advocating government for government’s sake, we Marylander’s need to be aware of just how closely tied our economy is to the Federal government.

Image credit: World Travel Guide