As usual, most of the really interesting and important news in this morning’s (as-always) ballyhooed monthly jobs report was buried in the details, and as usual, the press coverage missed most of it. This morning, I blogged about the manufacturing employment picture revealed for August – which was miserable. But it’s also worth highlighting another trend I cover – the growth of jobs in what I call the government-subsidized private sector.
Employment gains in these parts of the economy, notably health care services, just took off last month, and they’ve been especially strong over the last year. That’s good news these sectors – which also include the for-profit education sector and social assistance agencies – are your careers or career choices, or if you depend heavily on their offerings. But since the “real” private sector and the jobs it creates are the economy’s best hopes for innovation and productivity growth, and since their vibrancy is the real test of the health of the labor market, the out-performance of the government-subsidized private sector is something to worry about.
Government-subsidized jobs completely dominated the August jobs report, accounting for a stunning 35.84 percent of all non-farm employment creation (that’s the federal government’s statistical U.S. jobs universe) and 44.29 percent of all net job growth in the conventionally defined private sector. Those are by far the year’s highest such shares, and the kinds of results that haven’t been recorded since much earlier in the economic recovery.
Moreover, the subsidized private sector’s share of employment increases has been rising especially impressively over the last year. From January through August, 2014, the economy created a total of 1.893 million jobs. Of this total, 15.16 percent (287,000) came in the those industries. And these jobs represented 15.46 percent of the net new 1.856 million net new jobs generated in the “real” private sector.
For the first eight months of this year, total job creation was considerably less – 1.696 million for the total non-farm sector, and 1.603 million for the conventionally defined private sector. But 444,000 of these jobs were subsidized private sector jobs – 26.18 percent of non-farm total and 27.70 percent of the “real” private sector figure.
Overall American employment is so huge (as of August, the total non-farm workforce was pegged at nearly 143 million workers) that these trends take a long time to move the compositional needle. But their effects on the makeup of the labor market are real nonetheless, and can be examined by looking at where the jobs market stood at the onset of the last recession (December, 2007), and the start of the current recovery (June, 2009), a year ago, and today.
Here’s the employment picture when the downturn began, more than six years ago:
Private sector share of total nonfarm payrolls (NFP): 83.83 percent
Subsidized private sector share of NFP: 13.63 percent
“Real” private sector share of NFP: 70.20 percent
Subsidized private sector share of “real” private sector 16.26 percent
The recession wrought important changes, as these June, 2009 figures show:
Private sector share of total nonfarm payrolls (NFP): 82.76 percent (-1.28 percent)
Subsidized private sector share of NFP: 14.92 percent (+8.65 percent)
“Real” private sector share of NFP: 67.84 percent (-3.36 percent)
Subsidized private sector share of “real” private sector 18.03 percent (+10.89 percent)
As of last August, the conventionally defined private sector had regained some job-creation momentum, but most of it came in the subsidized component.
Private sector share of total nonfarm payrolls (NFP): 84.31 percent (+1.87 percent)
Subsidized private sector share of NFP: 15.45 percent (+3.55 percent)
“Real” private sector share of NFP: 68.86 percent (+1.50 percent)
Subsidized private sector share of “real” private sector 18.33 percent (+1.66 percent)
As of last month, these trends had intensified:
Private sector share of total nonfarm payrolls (NFP): 84.54 percent (+0.27 percent)
Subsidized private sector share of NFP: 15.57 percent (+0.78 percent)
“Real” private sector share of NFP: 68.97 percent (+0.16 percent)
Subsidized private sector share of “real” private sector 18.41 percent (+0.43 percent)
Moreover, the growth of subsidized private sector employment relative to all jobs over the last year would have been even faster but for one other new development in the mix: government employment jumped by 33,000 – its strongest monthly performance in two years in absolute terms. Indeed, government jobs accounted for just over 19 percent of all of August’s net new employment.
As usual, none of this is to say that government, or government-subsidized jobs are bad, or even to claim that the economy has too many or too few of them compared to its needs (or wants). Instead, it’s to distinguish between employment changes being driven mainly by market forces and those driven by politicians’ decisions – and to understand that any discussions of the labor market’s health (including by the Federal Reserve as it decides whether and when to raise interest rates) are bound to mislead if these differences are ignored.