Study: Contractors Exaggerate Job Loss From Defense Budget Cuts

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Private industry’s warnings that automatic defense cuts under sequestration would cost more than 1 million jobs are exaggerated, according to a new study by a national security think tank.

"Despite claims made by defense contractor funded reports, the Pentagon is not a jobs program,” said William Hartung, director of the Arms and Security Project at the Center for International Policy. “Pentagon spending is a drag on the economy, not a spur to economic growth.”

The center’s report, called “Minimum Returns: The Economic Impacts of Pentagon Spending,” offers quantitative, state-by-state analysis intended to counter arguments from groups such as the Aerospace Industries Association that defense cuts will harm local economies.

The left-leaning group also argues that a well-planned drawdown in defense spending will not harm national security. "Now is the time to get serious about developing a forward-looking defense strategy that aligns with national priorities and reshapes the Pentagon budget so we can better respond to 21st century threats,” Hartung said in a statement. “A well-educated and healthy workforce supported by state-of-the-art technology, not wasteful Pentagon programs, holds out the best hope of spurring sustainable economic growth."

The study asserts that contrary to common arguments, “contractors will be cushioned from the impacts of cuts” due to a $100 billion backlog and Pentagon spending already in the pipeline. “Major Pentagon contractors are well positioned to absorb budgetary reductions, even at the 10 percent level or beyond,” said the study, co-authored by Natalie Peterson.

Likely cuts in the Pentagon budget in the coming years are projected to displace some 290,000 and 500,000 jobs, or less than half the industry’s warnings, the report said.

Nor is it true that such cuts would spread to the economies of all 50 states, the study argued. “Pentagon contracts are concentrated in a small number of states and 28 states have Pentagon prime contract awards that are less than 2 percent of their state gross domestic product,” it said. “If evenly distributed across all states, even a 10 percent reduction in Pentagon spending would have only a direct impact on one-fifth of 1 percent of the economic activity in these areas.”

Though several contractors have recently announced layoffs, the center cites healthy fourth-quarter revenues at Lockheed Martin, Raytheon and Northrop Grumman.

CIP also noted comments made Wednesday by Frank Kendall, undersecretary of Defense for Acquisition, Technology and Logistics. As reported by Politico Pro, Kendall told a group of contractors that the Pentagon “can support the number of prime contractors that we have -- it is still a large budget. We’re going to be contracting out hundreds of billions of dollars for a variety of things."

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