Time for one of my favorite exercises in figuring out the American economy’s real strengths and weaknesses – as opposed to those reported by the usual mainstream media suspects. In other words, here’s what Friday’s new monthly U.S. jobs report tells us about how many of the new positions created in November and during the economic recovery have been those truly deserving the label “private sector,” and how many have come from industries heavily dependent on government subsidies (chiefly healthcare services).
This distinction seems more important than ever nowadays, with the country in the midst of presidential transition, and the media spreading the story that, thanks to President Obama, Donald Trump is incredibly lucky to be entering the Oval Office with an economy in such excellent shape – as opposed to the near-disaster situation faced by his soon-to-be predecessor.
If the new jobs figures really did bear out this claim, then you’d expect that the vast majority of the employment increase last month, and recently, would have come in the “real private sector” – because it’s always been the nation’s best bet for enduring prosperity. And by the same token, given their reliance on tax dollars and politicians’ decisions, you’d hope that new employment in the subsidized private sector would be a relatively small and even shrinking part of the picture.
Sadly, the narrative of the current recovery has told exactly the opposite story, with the November jobs figures underscoring again how employment gains in the subsidized portions of the labor market have punching considerably and increasingly above their weight.
The November statistics showed that the subsidized private sector created 44,000 of the 178,000 total net new jobs generated that month – or 24.72 percent. The private sector contributed 156,00 – or 84.67 percent. But as of November, the subsidized private sector accounted for just 15.78 percent of the nation’s total employment – a major over-performance. The private sector’s share of job gains was 87.64 percent – a minor over-performance. (Government at all levels accounted for the remainder of the employment improvement.)
Compare these figures to those at the start of the economic recovery, in the middle of 2009. At that time, when the economy was still losing hundreds of thousands of jobs per month, the subsidized private sector accounted for only 14.97 percent of total employment – but it gained 31,000 jobs that month. Indeed, it was the only net job-creation game going, as private sector employment was 82.77 percent of total jobs and shed 429,000 jobs.
At the start of the last recession, at the end of 2007, the subsidized private sector’s share of total American employment was even lower – 13.63 percent – though it was generating more than half of all the net new job created then. The total private sector represented 83.83 percent of all U.S. employment, but was responsible for only 56.70 percent of new job creation – i.e., not much more than the much smaller subsidized private sector. (Government at all levels added the balance of new jobs – more than 43 percent.)
And what happened to the real private sector during this time? Its share of total American employment sank from 70.19 percent to 67.88 percent and last month totaled only 62.92 percent.
The burgeoning role of the subsidized private sector also becomes clear by looking at job creation patterns over the last four years. During the first eleven months of 2013, 14.92 percent of all the economy’s new jobs came in the subsidized private sector. Moreover, these industries made up 14.60 percent of all the conventionally defined private sector jobs generated. During the first eleven months of this year, these numbers had increased to 24.82 percent and 30.18 percent, respectively.
Subsidized private sector jobs as a share of total jobs created actually dipped from 2015’s levels – when they stood at 25.27 percent. But that’s because the pace of government hiring more than doubled. More revealingly, the subsidized private sector represented 26.05 percent of all the conventionally defined private sector jobs created during the 2015 period. During the first eleven months of this year, this share increased to 30.18 percent.
From the opposite perspective, from January through November, 2013, 87.23 percent of all U.S. jobs created were real private sector jobs. By the first eleven months of this year, that figure had sunk all the way down to 63.52 percent.
As I keep reminding, no one should take this analysis as an argument that subsidized private sector jobs are “bad.” Obviously, the healthcare industry and social assistance agencies and for-profit educational institutions perform critical functions for any civilized society. But their reliance on government assistance just as obviously puts them in a different category from sectors of the economy where growth (and therefore hiring) to a much greater extent on free market forces. And no one should mistake their ballooning payrolls as a sign of healthy economic fundamentals.
As a result, I fervently hope that the new administration will direct the government’s statistical agencies to start drawing this distinction. If you care about knowing the real deal about the state of the economy, you will, too – and send your elected officials the message.