Think of it this way. There are three major kinds of employers: the public sector, the private sector, and the “private” sector. That last is the one that’s been growing:
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.
More encouragingly, manufacturing gained 25,000 jobs in December, and the November figure was revised from a 7,000 loss to a 5,000 gain.
The subsidized private sector created 65,000 net new jobs in December. This means that preliminary figures for hiring improvement last month for the real private sector (where output and employment levels stem overwhelmingly from market forces), totaled 103,000, not the 168,000 reported by the Bureau of Labor Statistics. As a result, government-supported private sector jobs fueled 38.69 percent of all total nonfarm job growth in December – way up from the downwardly revised figure of 12.33 percent in November. (All data are seasonally adjusted.)
The real private sector generated 66.45 percent of all net new nonfarm jobs in December – .lower than an 88.36 percent figure for November that itself was revised down slightly.
Subsidized private sector job creation in December, therefore, mirrored its hiring record throughout the current economic recovery. Since the recession technically ended in June, 2009, these industries have generated fully 38.43 percent of total employment gains in the nonfarm sector (the Bureau of Labor Statistics’ U.S. jobs universe).
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.
If that’s a sustainable pattern, then the Soviet economy should be the strongest in the world. The problem with what Dr. Tonelson, quoted above, is calling the “subsidized private sector” and what I’m calling the “private” sector is that the subsidies are distortionary. Not only do the amounts of the subsidies make those enterprises look stronger than they actually are but if the subsidies are large enough and go on for long enough those enterprises attract private investment they would not otherwise attract. Everybody loves a sure thing. That’s a substantial drag on investment in the non-subsidized economy.
If, in addition, the enterprises that are being subsidized are characterized by a relatively small number of very highly compensated workers and a much larger number of poorly compensated workers, like, say, the healthcare sector, increased employment in that sector drives income inequality. Lose-lose!