Pity the Poor Private-Sector Workers
By Robert Higgs • Saturday January 9, 2010 3:53 PM PDT • 26 Comments
Has the recession ended? If not, do “green shoots” foretell a recovery’s advent in the near term? The answer, of course, depends on which indicators we check. Unfortunately, the mainstream economics profession and the public alike place too much emphasis on highly aggregative measures, such as estimates of quarterly GDP and the standard rate of unemployment, in their attempts to grasp what is happening. As usual, we must delve into the aggregates and inspect their components in order to gain a clear understanding of how the economy got into its present condition and to arrive at a well-founded conjecture as to where it is likely to go in the near-term future.
Mindful that both the public and the policy makers place heavy emphasis on “jobs, jobs, jobs,” I have been thrashing about in the employment data collected, organized, and distributed by the Bureau of Labor Statistics. At this point in the recession, everyone knows that the standard rate of unemployment, for what it is worth, has risen greatly since 2007 and lately has been stuck in the neighborhood of 10 percent. Because of this statistic’s various ambiguities (which I have discussed elsewhere), however, I am concentrating here on a more unequivocal indicator—employment.
There is no happy news on this front, of course. Total employment peaked in 2007 at 137.6 million persons on nonfarm payrolls, fell slightly in 2008, and then dropped precipitously in 2009 to 132.0 persons, for a two-year loss of 5.6 million jobs. In 2009, total employment was approximately equal to its magnitude in 2001, even though the labor force had grown substantially in the interim. The sharp recent decline in employment, which normally increases from year to year along with the labor force, has been bad enough, but when we examine the components of aggregate employment, we discover even worse news.
We find that the loss of employment has occurred entirely in the private sector: employment fell from 115.4 million persons in 2007 to 109.5 million persons in 2009, a decline that took private employment back to its level at the end of the 1990s. As private employment has collapsed since 2007, however, the government payroll has actually grown slightly from 22.2 million persons in 2007 to 22.5 million persons in 2009, which puts this class of employment roughly 1.7 million persons above its magnitude in 2000.
Monthly data for the most recent year display this difference starkly. From December 2008 to December 2009, total employment fell from 135.1 million persons to 130.9 million, while government employment remained essentially constant at 22.5 million persons. The government employees also enjoyed increased compensation during recent years. Nice work if you can get it: no risk of losing your job, plus practically iron-clad prospects of rising real compensation, notwithstanding that millions of former private-sector employees now find themselves without jobs.
Of course, much of the Obama administration’s “stimulus” spending has been directed toward ensuring that state and local government workers do not lose their jobs, and federal employees, as usual, have not had to fear joining the unemployment line, owing to the rapidly growing appropriations for practically every department and agency in the recent, skyrocketing federal budgets.
This situation bears an eerie resemblance to the employment situation during the Great Depression, when private nonfarm hours worked fell steeply from 1929 to 1932 and did not get back to the 1929 level until 1941, notwithstanding (or perhaps because of) the millions of persons added to government payrolls during the New Deal period. In both cases, the possibility that government employment crowds out private employment, rather than stimulating it, cannot be dismissed out of hand.
Unless private employment growth resumes soon, the United States risks falling into the same long-term economic “sclerosis” that has plagued the welfare states of western Europe for decades. Already it appears that the past ten years may prove to have been America’s second “lost decade” (the 1930s having been the first), an interval of little or no net economic gain, owing to destructive government policies that produced only unsustainable booms followed by inevitable busts, along with such huge, frequent, and unsettling changes in government policies that private planning, especially for long-term investment, has become too risky for private investors to bear—a situation I call regime uncertainty.
Vulgar Keynesians like to suppose that whenever the government undertakes new spending to augment the ranks of its employees a multiplier effect will result, causing private economic activity and employment to follow the same upward course. Here again, however, a closer examination of what the government does and how it goes about doing it may serve to shield us from the fallacies of overly aggregative economic analysis.
UPDATE 1: Those who read Spanish will enjoy the current article at Libertad Digital by my friend Angel Martin, who shows that recent sectoral employment changes in Spain and the United Kingdom mirror those I have described above for the United States. Even if you don’t read Spanish, the graphs will be easy to understand, and they will convey the main point.
UPDATE 2: My friend Tom DiLorenzo makes an important point about these recent employment changes in a note he sent me:
Government employment is even worse than you wrote about in your recent
article, reprinted on LRC. The feds have employed thousands, probably
hundred of thousands or more, of additional “contract employees” in
recent years. They’re listed by the Commerce Dept. as private sector
employees even though all their pay and benefits come from government
contracts. The D.C. suburbs are booming like they’ve never boomed
before in terms of population growth. This boom started with Bush and
Fatherland Security and his wars, and has been greatly expanded by
Obama from everyting I’ve read. Unfortunately, good statistics are
really hard to come by on these contract employees.
Tags: American History, Business, Economics, Employment, Great Depression, Politics, The State 
Move to San Antonio- no depression/recession there. Why? Large gov employment, both military and civilian, plus home for retirees of both. Indeed, many worked in both capacities.
richard smith | Jan 10, 2010 | Reply
San Antonio also didn’t have the local and state government preventing or delaying for years buildings, business expansions and housing development like occurs in areas like California. As a result, the supply of housing was in equilibrium with demand and you had no housing bubble and corresponding crash. Without a crash, the property tax basis was constant.
In Calif., if you needed a rapid expansion of production, you had to leave the state or country to get the capacity additions in the time frame necessary to satisfy the market. That is the reality of too much bureaucratic government.
Dallas | Jan 10, 2010 | Reply
If your point is that gov’t spending creates prosperity on its own or through the multiplier effect, that works for a city like SA because the larger national economy is subsidizing it (i.e., taxpayers from across the U.S. pay to support public employment in SA).
Many other cities and states are on the other end of the stick, getting less money back from DC than they send in taxes.
Gov’t cannot create wealth; it only takes wealth created by the private sector and “redistributes” it.
When gov’t spending is slashed, as it will be soon, places like SA that depend on it will be hurting big time.
Monnie | Jan 11, 2010 | Reply
Gee, so what you’re actually saying is that you live in a community that mooches its entire subsistence from the sweat and work of the rest of us! It never ceases to amaze me the amount of people who think the “government” has it’s own bottomless supply of money! People, the “government” has NOTHING! Every single penny that pays for your “no depression/recession here...large government employment, both military and civilian lifestyle” comes directly out of the well abused pockets of the taxpayers. Your “no depression/recession” government subsidized mooching is bankrupting the rest of the country!
Cleophus | Jan 11, 2010 | Reply
Richard, it is a similar situation in the other Texas SA city (San Angelo). The largest employer is the insatiable tax-eating school system and the second largest is the military base. Retirees are a large part of the population and I suspect many are dipping from more than one government trough. City government is invariably run by military retirees or families with ranch oil income. Legit large business is outsourcing to Mexico and Brazil while other businesses come long enough to get tax abatement and other perks. The city is good at recruiting call center business! And, we just got a Portuguese wind power company to break ground in anticipation of over a billion dollars in stimulus money!
tolemo | Jan 12, 2010 | Reply
I’ve long thought that citizens would be better served if the government reported the percentage of adults who hold private sector jobs, rather than the adjusted-to-meaningless unemployment rate. I betcha people would freak out to find out how few people are funding the government – kind of like Kalifornia’s recent revelation of under 150,000 people funding 50% of government for 38 million. There’s a storm comin’.
Manfred | Jan 12, 2010 | Reply
Help Wanted:
Private sector employer has immediate opening for 30 million riflemen. Must be able to shoot straight, speak the truth, and march to Washington, D.C..
No drug test required, but Constitution quiz is mandatory.
Compensation: Prosperity for all.
Must provide own battle rifle.
Thomas Hallett | Jan 12, 2010 | Reply
Dr. Higgs, as always, hits the proverbial nail squarely on the head. The sad thing about this is that there is NOTHING new under the sun here; we’ve been here before, 1933-1941, with transparently and predictably disastrous results. However, we must remember that those described by George Santayana’s famous maxim constitute by far the majority, so expect history to repeat itself with even more horrific results than the last time.
liberranter | Jan 12, 2010 | Reply
How nice to be in San Antonio. Glad to know borrowed Chinese money and huge deficits are working out for a select few, at the expense of everyone else. Too bad everyone I know that lives there is afraid to leave their house after dark. But hey if you get stabbed by an illegal, and the cops ignore it so that they don’t have to deal with the hassle of INS, it never really happened right? Never happens here in California either. Just ask the statistics...
So what is the Government PRODUCING? This is where the communists who brag about their government jobs (in San Antonio, or wherever) fail to have clever responses. Make no mistake, the government’s GDP is ZERO POINT ZERO. If every citizen worked for the government our national GDP would be ZERO POINT ZERO. But hey, they could pay us all a billion dollars of freshly printed money a week. And at least that way we could witness our currency devaluation as a public event, rather than through the slow and convoluted process by which it is currently happening, allowing us to hide firmly behind denial or ignorance.
But this IS what will happen. The value of our currency will change in inverse proportion to how many workers are on the government payroll. And as that number increases, it will accelerate the rate of that devaluation to a tipping point beyond which the government cannot afford itself, even by appropriating 100% of what is left in the private sector. This is why COMMUNISM HAS FAILED EVERY TIME. This much we know from history, but sadly not from experience. Will we have to suffer barren stores, and barren cupboards, boarded up businesses, and shortages of basic amenities? All of it aggravated by witnessing an entitled government elite eating off of our grandmothers’ stolen china, before we TAKE ACTION based on this lesson?
Of course we will. Obama is spending $50,000 a week to vacation in the Hamptons on a $200k salary. And we PAY TO SEE THE PICTURES.
Goodbye America. It was nice knowing you...
Dick Smith | Jan 12, 2010 | Reply
Even DiLorenzo does not go far enough. It’s govt intervention that matters, not govt spending. If the govt of Town A collects taxes to pay $1m for a public school (or utility, hospital, or any other company) and the govt of Town B (assume same population, income and property values) forces residents to pay $1m directly to a private school in which they legally granted a monopoly and force children to attend, A has govt spending while B does not, but is there a practical difference?
Steve W | Jan 12, 2010 | Reply
When will we know we’ve passed the point where government “dig a ditch and fill it in” contributions to GDP have so crippled actual economic activity that a depression (bank collapses, pension & retirement account evaporation, >35% unemployment) is inevitable?
Perhaps the point of no return is already receding in the rear view mirror.
If this occurs, I don’t think a 1930′s-style New Deal circus is in the offing. Who would buy the T-bonds to fund it? Something much worse seems more likely.
David Calderwood | Jan 12, 2010 | Reply
Following DiLorenzo’s note on the Washington’s boom, it is interesting to see the contrast between DC’s and NY’s recent economic performance.
Almost a year ago I wrote a brief piece on this topic.
It was based on a Business Week‘s article where among other things, it pointed out that this also happened in the Great Depression. I am sure you know about this.
Thanks for the link.
Angel Martin | Jan 12, 2010 | Reply
Jacksonville is another “welfare city” full of government/military jobs and their retirees. What a bunch of leeches.
Xenophon | Jan 12, 2010 | Reply
I’m thinking that Richard Smith was speaking tongue-in-cheek? Surely someone who reads Professor Higgs wouldn’t be so ignorant of economic cause-and-effect?
Dan Meissner | Jan 12, 2010 | Reply
Having a girlfriend that works for the Federal Government I’ve heard many stories that would make any private sector tax payer’s blood boil, but the worst is when they quit the government job to make a little more money, then realize the work doubles, so they just go back to their old cushy gov job no questions asked with a promotion to boot!
JEFF | Jan 12, 2010 | Reply
The same thing is happening in the UK. Traditionally, civil servants have been paid less than the private sector, compensated by their generous final salary related pensions (unfunded i.e. paid out of govt taxation – or borrowing more likely, in the case of central govt employees) and higher levels of job security.
Not so now; civil servants and local authority employees now are paid, on average, 6% more than their private sector counterparts. The numbers thus employed have increased by over 900,000 in the last ten years while the number of private sector employees has remained static or even declined over the same period. Productivity in the public sector has declined by about 3% while private sector productivity has increased by over 18% over the same period. (My figures are from memory so not exact I’m afraid.)
Public sector: that’s where the smart people are going!
John Harrison | Jan 13, 2010 | Reply
Right on target to the tipping point of social / economic collapse.
This is just a manifestation of the eternal war between the productive (those who produce more than they consume) and the greedy (those who consume more than they produce). Civilizations rise (honesty in control) and fall (predators in control) based on whether the law is controlled by the civilized (those who contribute) or, those who prey. I leave this as an exercise to the reader to determine the current situation. Easily proven here.
Bill Ross | Jan 13, 2010 | Reply
Your comment is hilarious. Have you read this article on the 15 most recession-resistant cities (cities with the most government payola)?
And this listing on some, very handsome, government-subsidized stimulus by state/county?
Do a little reading. Then get back to us on who is NOT getting fat on government money.
ronin | Jan 13, 2010 | Reply
Robert R, states, from this thread:
http://reason.com/archives/2010/01/12/class-war#comment_1524236
Part of me can hardly wait to see what happens when the unfolding Greater Depression wipes out tax receipts, cuts off the states from being able to borrow money, and kills the states’ ability to PAY all the government workers for years and years. It’ll be fun to watch those who chose to make themselves dependent on government try to deal with the iron laws of economics. That would also be the perfect time for the producers of wealth to have already accumulated a nest egg to live off of to “go John Galt” or retire and withdraw all their tax support for the government system, which so many seem to gone into solely for the purposes of rape, pillage, and plunder. It will be fun to watch the parasites instead get creamed by the depression, although it will suck that many honest people will also get badly hurt.
Bill Ross | Jan 13, 2010 | Reply
I am a government employee and we are not all COMMUNISTS and LEECHES. I served my country in the military for 20 years, providing the security for your freedom. I STILL protect you daily as a government employee. Sure, we have our DEADBEATS, JUST like the private sector. And rest assured, we are not all ROLLING in the dough. I do admit, there is too much money in the system, ESPECIALLY in the Contract side (it does make my blood boil). I work-HARD. And when you RAIL at government employees, be sure to rail at the soldiers who are keeping you safe, they are government employees also, who get benefits for the rest of their life, even if they never SAW a warzone.
Sam | May 14, 2010 | Reply