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The New Economy

Are we halfway back from the Great Recession? Not really.

The private sector has regained just over half of the 7.7 million jobs it lost during the Great Recession. But many of those private-sector jobs are government-subsidized. 

By Alan TonelsonContributor / December 8, 2012

Job seekers stand in line to meet with prospective employers at a career fair in New York City in this October file photo. The US Labor Department reported Friday, Dec. 7, 2012, that the private sector gained 147,000 jobs in November. But when government-subsidized jobs aren't counted, the 'real' private sector only gained 129,000 jobs,

Mike Segar/Reuters/File

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Early on in this historically weak recovery, many Americans realized that measuring real job gains required making a vital distinction. Government hiring and firing needed to be viewed separately from employment changes in the private sector.

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After all, much of President Obama’s stimulus bill focused on preserving state and local government services, something that wasn't likely to be sustainable on its own. And even most on the Left have long appreciated that private sector-led growth is vastly preferable over time to government-led growth.  

But there's another important distinction within the private sector that's not so obvious. Industries where hiring is overwhelmingly determined by market forces (the true private sector) are a different breed than industries where hiring is heavily influenced by government support (the subsidized private sector).

The latter industries are by no means government-owned, so their hiring and firing shouldn’t be lumped in with government totals. But they benefit from financial props that aren’t available to most private business, and therefore don’t belong in that category, either.

This distinction matters for the same economic reasons that lead most Americans to judge countries with relatively small, limited governments as superior to those with big, powerful governments. The former tend to produce the greatest, most widely shared prosperity over time, because economic actors generally need to live with the material effects of their decisions. These disciplines are rarer in state-dominated systems, where investment, consumption, and hiring decisions are often politicized, and accountability is therefore lacking.

Defense is an obvious example of the subsidized private sector. Government is not only the sole customer, it's a key source of research and development. But the Labor Department doesn’t break out defense-related employment when it reports monthly job numbers. Ditto for jobs related to homeland security.

The Labor Department does publish figures on hiring in three other industries in the subsidized private sector: health-care services, social assistance agencies, and for-profit educational institutions. And they suggest a troubling idea: America's recovery is even weaker than is commonly reported.

Since the recession ended (at least in most economists’ minds) in mid-2009, the subsidized private sector has accounted for just over 38 percent of all the jobs regained by Americans – even though its share of employment has stayed at less than half that level. Moreover, subsidized private sector jobs represent nearly half (47.5 percent) of all the private sector jobs created. 

Here's what that means: If you define the private sector the usual way, you could say that America is halfway back from the Great Recession. The conventionally defined private sector has regained just over half of the 7.7 million jobs it lost. But if you look at the real private sector, you would say the US is only a third of the way to a full recovery: Only a third of the 8.3 million jobs lost during the downturn have been replaced.

A careful reader will notice an apparent discrepancy. The real private sector seems to have lost more jobs during the recession than the conventionally defined private sector did. How can that be? Because the payrolls of the subsidized private sector  actually grew during the recession – by 625,000.

Friday's job numbers suggest a positive development. In November, the subsidized private sector – the one we can track, anyway – weakened as a hiring engine. It created only 12.3 percent of all the net new nonfarm jobs generated by the economy, a smaller share than its share of total American jobs – 15.3 percent.

All the same, had the critical distinction been drawn, the Labor Department would have reported Friday that November's real private-sector job growth was 129,000, not the 147,000 figure contained in its release.

It's too early to judge whether November signals a sea change for the subsidized private sector. In September and October, hiring in the subsidized private sector grew by 34.1 percent and 17.4 percent, respectively – i.e., it was still punching above its weight. Moreover, the Labor Department keeps revising its jobs numbers, sometimes substantially, so we might not know for months.

There's another difficulty: The easily tracked industries reported here hardly represent the extent of the subsidized private sector. Adding defense and homeland security may not suffice, either.

For example, Americans’ use of pharmaceuticals and medical devices is just as artificially propped up by government as their use of doctors and nurses. Government’s role in housing has been enormous for decades and stands at historic highs – surely construction industry employment has benefitted.  

These government economic interventions will remain controversial among Americans for years. What shouldn’t be controversial is the need to incorporate them much more effectively into government employment data. Otherwise, US policymakers will continue flying largely blind as they try to create the best environment for real job growth in the long term.

Alan Tonelson, author of “The Race to the Bottom” is research fellow at the U.S. Business and Industry Council, which represents small and medium-sized domestic manufacturing companies. He contributes regularly to AmericanEconomicAlert.org.

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