Was Nearly 40 Percent of ‘Private-Sector’ Job Growth in December Subsidized by Government?

The U.S. economy created 168,000 private-sector jobs in December. But all private-sector jobs are not alike, of course. One way to examine them is by determining which are mostly the result of market forces and which are the result of debt-fueled government subsidies. Alan Tonelson of the U.S. Business and Industry Council:

This morning’s jobs report shows that the economy’s subsidized private sector (industries like health care services that receive big government subsidies) is back as a major source of new hiring.  If a stronger but sustainable U.S. recovery depends on reinvigorating industries not heavily dependent on government largesse, then this hiring out-performance by the subsidized private sector is a bearish indicator.

As Tonelson figures it, the subsidized private sector created 65,000 net new jobs in December, nearly 40% of total private-sector job growth, about the same as throughout the recovery. But is that a lot or a little? Tonelson:

Such subsidized private sector job creation represents major out-performance, since these industries’ share of total nonfarm employment was only 15.32 percent in December.

Certainly an interesting way of analyzing the health of the U.S. labor market, particularly the growth of jobs in unproductive, government influenced sectors such as healthcare and education. These numbers made me recall this bit from economist Tyler Cowen on the EconTalk podcast

Consider our economy right now: about 17% of it is health care; about 6% in terms of GDP is education; and with some overlap, 15-20% is what we call government consumption–government activity, not just transfers. At all levels of government, including state and local. Add those all up, take out the overlap, and it’s a pretty big chunk of the economy, like 20-30%. Those are all sectors where there are massive subsidies, massive distortions of incentives, a lot of bad policy; and it’s hard to measure value.

This economic recovery has been weak, but is it sustainable even at this low level without more help from debt-strapped Washington? Is it even a recovery if you define one as private-sector led growth?

  1. Whiskey Sam

    Is it healthy for a parasite to consume the host?  

  2. Copperfield

    Good points.  In the short to medium term, this is a problem.  Longer term, I included the below paragraph in my monthly analysis this morning:

    Longer term, the current pace of job growth must accelerate if it is going to outpace population growth and appreciably reduce the unemployment rate.  The youth unemployment rate is particularly troubling, with unemployment for 16-19 year olds currently at 23.5% and for 20-24 year olds at 13.7%.  Without marked improvement for these cohorts, the supply of skilled, experienced workers that drive productivity may wane in coming years.  Over the long term, population and productivity growth are the primary ways to grow an economy.  Some economists are now questioning long term prospects for the U.S. economy with the U.S. birth rate recently reported as the lowest since the 1920’s and the specter of this persistent youth unemployment challenge. 

  3. Franciscus

    Won’t more “help” from washington only cause a greater malinvestment of capitol?If this is the case, and government investment continues to outpace private market driven investment I think there will only be another great bubble to pop. The cycle continues, boom and bust.I don’t ever hear our current argument discuss savings in our current analysis, why? Have we just bought macro hook line and sinker?

  4. liberal jim

    In 2008 there was a bipartisan decision made not to allow the market to work.  Since then the Fed has been printing money and financing the budget deficit.  Currently the Fed plans to add 1T per year to its balance sheet and the current deficit is approximately the same.  

    Government forces are being used to depress the cost of capital (interest rates) therefore in can be properly argued that all economic activity that is utilizing borrowing is being subsidized.  The government may never run out of money. but at some point it will run out of credibility and when that happens market forces will take over.

    I would argue that since 2000 little or no economic growth has taken place.  Since then total debt has grown from 100% of GDP range to a high of 390% in 2008 and is currently at 350%.  Add to that the regulation burden created by both GWB and Obama and it makes little sense to assume a growing economy.

    Free markets provide reliable information, manipulated markets provide false information.  For years the 30″s were thought of as a decade of recovery that was false and so is this recovery.

  5. BlueAnt

    Well, OK, but if that’s how we are defining government subsidized industries, we also have to include defense contractors, aerospace firms, a huge chunk of the energy industry, and all the restaurants in Washington DC.Not that this is a BAD point to be making, but the economy is so complicated and interconnected that measuring anything beyond direct government spending is impossible. Besides which, government spending is a legitimate increase in economic activity; the problem is that it is not *organic* growth. Also, government taxation and spending crowds out potential higher private spending.It is possible for real growth to contain large percentages of gov spending; empirically, this is usually the case. I would be more worried if it ticks closer to 60-70%.

  6. Indaba

    Canadian bankers in a small meeting discussed how their clients, businesses needing loans, had their biggest problem with US clients and long term contract pricing. The US dollar, in real value, has dropped by 50% over the past 5 years causing strain for the Canadian manufacturers. The Canadian government is keeping the the Cdn dollar as close to par as possible which hides the true value drop. So you can create jobs but relative value has dropped.

    Once your fracking industry gets really going, your government will use that to transfer payments to food stamps and health care and the government workers. A Canadian teacher with ten years seniority earns more than an MBA working twenty years in finance. My sons look at givernment jobs as the best ones. Our new company start-up number is dropping, that is the canary in the mine number. Who wants to run a business without a pension and benefits? Who wants to work for one? Not as many as those who want to work for government. Our nation’s capital has the most restaurants, highest property values and people with pensions starting at age 50. Those numbers tell the true story of the future economy.

  7. Sisyphus

    @BlueAnt: Given the current tools, I count per capita consumer spending as a plus.

    And while the federal management bathes in the wisdom and virtue of their excellent management skills, they have a long history of having to pull the fire alarm and bring in fire fighters to rescue them from their very predictable follies. And then you pay for the cube bay of mixed skillfulness and the hired guns to right the ship.

    The federal acquisition regulations and the plethora of other regulations applicable to contractors and their government bosses are a mind boggling cornucopia of inconsistent, mutually contradictory invitations to long jail terms and hefty fines. No one knows them all. No one knows 1/10th of them. 

    Then there is the festival of sort as the fiscal year screams to a close, as federal departments that have overlooked the spending of their entire budget through the remainder at any fool thing they can imagine to assure their budget does not shrink the next year (an infraction more likely to receive disciplinary action than any other).

    That new $330B was squandered long before the last member left the House floor after the vote.

  8. Sisyphus
    liberal jim: In 2008 there was a bipartisan decision made not to allow the market to work.  Since then the Fed has been printing money and financing the budget deficit.  Currently the Fed plans to add 1T per year to its balance sheet and the current deficit is approximately the same.  

    I would argue that since 2000 little or no economic growth has taken place.  Since then total debt has grown from 100% of GDP range to a high of 390% in 2008 and is currently at 350%.  Add to that the regulation burden created by both GWB and Obama and it makes little sense to assume a growing economy. 

    I suspect if there were reliable numbers for dodgy expenses like cost of compliance, you would be proven more than justified in this. 

    Personally, even with the banks sitting on trillions of dollars of fresh printed reserves, all of the dollars the Treasury is spewing to cover the debt is astoundingly failing to translate into inflation numbers. Is there a velocity shift in the dollar exerting a deflationary pressure?

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