Whenever I see phrases like “unambiguously positive” to describe economic trends during this U.S. recovery, my guard goes up. Yours should, too, because the economic conventional wisdom that’s been gushing today about the new May jobs report released this morning has missed a big recent trend: A large, growing share of the employment gains registered recently have come in what I’ve called the government-subsidized portion of what’s usually called the private sector. By this term, I mean industries like healthcare services, where levels of demand – and therefore employment – depend heavily on various government subsidies.
Actually, this definition of the subsidized private sector surely understates its size. After all, many Americans who work for private companies supply the military and to the intelligence community, and other government agencies. Moreover, medical-related manufacturing should also qualify. But I’ve typically restricted the term to encompass health care services, the for-profit educational sector, and social assistance agencies for a very simple, practical reason — they’re nicely broken out in each of the monthly jobs reports, and therefore it’s easy to track them for purposes of same-day reporting.
Today’s May figures (which are still preliminary – like the April data) showed us that the subsidized private sector accounted for 74,000 of the total 280,000 net new jobs created last month (26.43 percent), and produced 28.24 percent of the 262,000 job gain reported for the private sector as it’s defined conventionally. Since these government-supported jobs represented much smaller shares of total employment and private sector employment (15.53 percent and 18.37 percent, respectively), it’s clear that they’re punching above their weight. And taking a longer view shows that their pugilism has been getting steadily more vigorous.
In the first five months of 2013, for example, the subsidized private sector accounted for 15.87 percent of all net new jobs created, and 15.35 percent of the job gains in the conventionally defined private sector. During the first five months of 2014, these percentages rose to 16.51 percent and 16.70 percent, respectively. And for the first five months of this year, the subsidized private sector share of all new jobs is all the way up to 26.03 percent, and has accounted for fully 27 percent of all private sector job gains.
The shift also shows up when the economy is examined on a static basis. When the recession began (officially in December, 2007), the subsidized private sector made up 13.63 percent of the total workforce and 16.26 percent of the private sector conventionally defined. Because employment in the subsidized private sector (overwhelmingly in healthcare) actually rose during the recession, when it ended, in mid-2009, those industries made up 14.92 percent of total non-farm jobs and 18.03 percent of the conventionally defined private sector. Job creation in that conventional private sector has rebounded throughout this expansion, but as shown in the numbers cited in the third paragraph, subsidized industries still keep gaining on it.
As I’ve explained, you don’t have to be an anti-government zealot to be concerned about the outsized growth of the subsidized private sector. Even recognizing that government, especially at the federal level, and especially during this recovery, profoundly affects the entire economy, it’s still possible to distinguish between those industries whose workings remain mainly influenced by market forces, and those where the public sector has become a decisive player. And it’s still useful to draw that line – if you believe (as you should), that industries most shaped by market forces are the nation’s best hope for continued progress in innovation and productivity, and therefore healthy growth. And if you don’t? Hopefully you agree that accuracy and precision are worthy goals in their own right.