Despite a halving of the headline unemployment rate during the current economic recovery, signs of weakness in the U.S. job market remain way too easy to find — including multi-decade low shares of Americans actually working, still-lofty levels of those too discouraged to seek work or employed part-time involuntarily, and historically sub-par wage growth that’s only recently shown any vigor.
Here’s another big problem with the national jobs scene that’s been virtually overlooked: Employment gains in the private sector have been much weaker than official figures indicate, because the government includes in this category tens of millions of jobs that depend heavily on government spending.
Employment gains in the private sector have been much weaker than official figures indicate.
The Labor Department, which puts out the employment data and just released its latest report (covering June), breaks out private sector employment trends from changes in the government workforce for a crucial and entirely valid reason. Hiring and firing in the private sector is driven largely by market forces. Therefore, the statistics shed much light on the strength or weakness of the nation’s economic fundamentals — and, in turn, how lasting progress or setbacks are likely to be. Indeed, that’s why the Obama administration has so proudly boasted about the long string of monthly private sector job gains since early in his presidency.
But employment levels in the public sector simply reflect politicians’ decisions on budgets — whether nationally or in states and localities. Whether they perform needed functions or not, the number of these workers is unrelated in any direct sense to the businesses whose performance has always been central to the nation’s economic fortunes.
That’s why it’s so vital to recognize the share of jobs considered private sector but being created in parts of the economy that are heavily subsidized by tax dollars — and of course to a great extent by budget deficits. Health care services is the biggest that can be easily identified in the government statistics, and the private education and social assistance sectors can be added as well.
Counting the private sector properly certainly puts the new official jobs figures in a different light. Rather than having added 265,000 workers on net in June, this technique would subtract the 59,000 new hires in the government-subsidized private sector and come up with a 206,000 total instead — more than 22 percent fewer.
More importantly, the longer the time period examined, the bigger the subsidized private sector’s role gets. For example, economists put great stock in job creation over one-year periods, and according to the Labor Department, the private sector added 2.682 million jobs since June 2015. But remove the government-subsidized sectors, and the figure falls by 668,000 — or nearly 25 percent.
An even more revealing metric measures change on a year-to-date basis. That is, how does the current January-June period compare with its predecessors? During the first six months of this year, industries heavily dependent on government spending made up nearly 30 percent of all the jobs (including government proper) added in the United States, and more than 32 percent of the jobs defined as private sector.
In 2015, those figures were 25.74 percent and 26.55 percent, respectively. So the private sector over-count has grown significantly in the last year alone.
Going back a few years — say, to 2013 — yields even more eye-opening results. During its first six months, the subsidized private sector accounted for only 14.22 percent of total job gains, and 13.31 percent of the increase in the conventionally defined private sector. In other words, in just three years, its share of employment growth has more than doubled.
Consequently, job creation in the private sector has been much less impressive than the standard figures suggest. The Labor Department reports that so far this year, its version of the private sector has boosted employment on net by an average of a little over 158,000 jobs per month. Strip out the subsidized private sector, however, and this figure barely tops 107,000.
Three years ago, both these numbers were lower — the conventionally defined private sector was generating net new jobs at a clip of nearly 208,000 per month and the “real” private sector was adding an average of 180,000. But the drop-off in the subsidized private sector during the three years since has been much bigger.
The outsized surge in subsidized private sector jobs can also been seen by looking at the economy on a stand-still basis. In December, 2007, when the last recession officially began, its share of total American employment stood at 13.63 percent, and it represented 16.26 percent of conventionally defined private sector jobs.
Consequently, job creation in the private sector has been much less impressive than the standard figures suggest.
By June 2009, when the current recovery officially began, these figures had grown to 14.97 percent and 18.09 percent. That’s largely because although American employment overall cratered during the downturn, it actually kept rising in the subsidized private sector — especially in health care.
Because the rest of the economy has resumed hiring since then (overwhelmingly in the real private sector), the subsidized private sector’s relative growth has slowed. But as of last month, it was still up to 15.73 percent of all American employment and 18.59 percent of officially counted private sector jobs.
It’s true that the health of the subsidized private sector isn’t entirely dependent on government. But it’s also true that this part of the economy is much bigger than what’s made obvious by the official data. For example, it’s more difficult to determine how many manufacturing workers are engaged in defense-related production. In addition, manufacturing employment in big health-related sectors like pharmaceuticals is surely propped up by the huge overall health care subsidy.
American consumers rightly demand truth in advertising. The seriously underestimated government role in the nation’s job creation makes clear they need to start demanding more truth in major measures of their economy’s performance, too.
Alan Tonelson, who writes on economic and security policy at RealityChek, is the author of “The Race to the Bottom” (Westview Press, 2002).