(What’s Left of) Our Economy: U.S. Private Sector Job Creation is Still Overstated, but its Comeback Continues

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government, health care services, Jobs, private sector, recovery, subsidized private sector, {What's Left of) Our Economy

Since we get a breather till the last week of the month in the flow of major nation-wide U.S. economic data, why not revisit one of my favorite unofficial measures of the American economy’s health? That’s the share of job creation that’s accounted for by what I call the subsidized private sector – those parts of the economy – notably healthcare services – that are officially classified as private sector industries, but that don’t really deserve the label because they depend so heavily (including for employment levels) on massive government subsidies.

This distinction matters, or should matter, because nearly all Americans rightly believe that the private sector, not the government, is the economy’s best hope for productive, sustainable growth. In turn, genuine private sector job creation is a much better gauge of the economy’s health than private sector job creation whose numbers are inflated by including the subsidized industries’ performance.

So I’m glad to report that the results for the first three-quarters of this year (through September) show the continuation of a trend I’d spotted a while ago: The subsidized private sector’s share of new total jobs and new private sector jobs is considerably lower so far during the Trump years than during Barack Obama’s presidency. At the same time, the subsidized private sector is still punching above its weight in terms of job creation, which isn’t such good news.

Let’s start, as usual, with 2013, since it was a year by which time the current economic recovery (which began in mid-2009) was well established. Conveniently, it also permits examining progress over a five-year period.

Between January and September, 2013, the subsidized private sector generated 11.14 percent of the economy’s total net new jobs created, and 10.83 percent of all the such jobs credited to the private sector as conventionally defined. The “real private sector,” meanwhile, produced fully 91.79 percent of the economy’s new hires, and 89.17 percent of the employment improvement placed in the conventional private sector category. (A drop in government employment accounts for the failure of these percentages to add up to 100.)

But what a change by 2016 – the last year of the Obama administration. During the first nine months of that year, the subsidized private sector’s share of total payroll increases had more than doubled – to 23.04 percent. And its share of all the conventional private sector jobs added during this period rose even faster – to 27.92 percent. Largely as a result, the real private sector accounted for only 59.43 percent of all net new U.S. employment. And the real private sector’s share of job gains credited to the conventionally defined private sector dropped to 72.06 percent.

So far this year, the subsidized private sector’s share of all U.S. job creation is down to 19.73 percent. The real private sector share of this total bounced all the way back to 76.27 percent, and its share of conventional private sector job gains was up to 79.44 percent.

But between 2017 and 2018, progress along these lines was much slower than during the previous year. In fact, when examined on a stand-still basis (different from the dynamic basis represented by the above employment change numbers), the subsidized private sector’s share of total U.S. employment actually has edged up over the last year – from 15.85 percent to 15.89 percent, and these industries’ share of conventionally defined private sector employment remained at 18.69 percent. 

With the subsidized private sector’s share of total job-creation this year nearly four percentage points higher (the 19.73 percent referred to in the previous paragraph), it’s clear that these industries keep creating an outsized share of overall new U.S. hiring.   

As always, please remember that I’m not portraying the subsidized private sector as worthless or only marginally important. Of course we need healthcare services in particular, and as the American population continues to age, we’ll continue to need a lot more. All I’m saying is that the nation needs to define its terms properly, and recognize that, without immense government spending (and the consequently greater debts), many of the jobs we’ve come to consider private sector jobs simply wouldn’t exist.

(What’s Left of) Our Economy: Government is Still (Indirectly) Driving Too Much U.S. Job Creation

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Great Recession, health care services, Jobs, Obama, private sector, recovery, subsidized private sector, Trump, {What's Left of) Our Economy

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.

(What’s Left of) Our Economy: A Halt in the Subsidized Private Sector’s Hiring Momentum?

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Employment, Great Recession, health care services, Jobs, jobs report, private sector, recovery, subsidized private sector, {What's Left of) Our Economy

Since the next U.S. jobs report (covering August) won’t be out until a week from Friday, it seems like a good idea to take stock of where the economy stands in terms of the employment being created during this weak recovery by industries that depend heavily on government subsidies for their levels of activity – and therefore hiring. (Think, in particular, “healthcare services.”) Distinguishing these jobs from those in what I call the “real private sector” matters because America’s best bet for lasting prosperity is an economy where the lead roles are played by sectors whose vibrancy is determined mainly by market forces, not government decisions.

The message being sent by the last jobs report (which covered July) and revisions for June and May mixes good news with bad news. The good: After surging through the spring, the relative growth of subsidized private sector jobs seems to be leveling off. The bad: On a January-July basis, these jobs are still a more important part of the national hiring picture than during the first seven months of last year, and their prominence remains way up over the last four years.

July’s numbers are still preliminary (as are June’s). But they show that the subsidized private sector accounted for 15.73 percent of total non-farm jobs (the Labor Department’s employment universe) and 18.58 percent of the jobs classified as private sector. The former figure was unchanged over the June level (which itself was unrevised) after a long period of steady increases. The latter was also unchanged from June, but that June figure was revised down from 18.59 percent – which also happened to be the May number.

Similarly, the subsidized private sector accounted for only 14.90 percent of July’s total monthly job gains. That’s down from 19.86 percent in June and completely different from the situation during the (apparently anomalous) month of May,. That’s when the entire non-farm economy only created 24,000 net new jobs and the subsidized private sector increased payrolls by 46,000

Of course, these shifts aren’t big (except for those involving seeming outlier May). But even small changes in direction following years of unmistakable movement one way or another can signal bigger changes down the road. So stay tuned.

As indicated, though, over the longer term, the subsidized private sector is still pacing the nation in relative employment gains by a wide margin. During the first seven months of this year, these industries were responsible for 25.96 percent of the net new jobs created by the entire economy, and 28.99 percent of the jobs conventionally defined as private sector. Those numbers are up from 24.72 percent and 25.87 percent, respectively, in 2015, and all the way up from 15.10 percent and 14.26 percent in 2013.

Viewed from another perspective, four years ago, the real private sector – the part of the economy we want to absolutely dominate hiring – generated nearly 91 percent of the total economy’s net job increase during the first seven months of the year. Since then, that share during comparable seven-month stretches has declined to 81.55 percent, 70.82 percent, and only 63.59 percent so far this year.

And even though the stand-still numbers cited above have been improving month-on-month so far this year, the subsidized private sector’s hiring employment is still much higher nowadays than at the start of the (Great) recession. In December, 2007, it stood at just 13.63 percent of all non-farm jobs and 16.26 percent of conventionally defined private sector jobs.

When the recovery began, in June, 2009, these numbers were 14.97 percent and 18.09 percent, respectively – because the private sector without subsidies was had taken such a huge jobs hit during the recession. To remind, the latest (July) figures are 15.73 percent and 18.58 percent.

Netscape founder Marc Andreessen captured a major technology, business, and economic trend a few years ago when he said that “software is eating the world.” It’s an exaggeration to say that the subsidized private sector is eating the American jobs market. But “munching on it” may not be so far off the mark.