Pity the Poor Private-Sector Workers

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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.

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Robert Higgs [send him mail] is senior fellow in political economy at the Independent Institute and editor of The Independent Review. He is also a columnist for LewRockwell.com. His most recent book is Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government. He is also the author of Depression, War, and Cold War: Studies in Political Economy, Resurgence of the Warfare State: The Crisis Since 9/11 and Against Leviathan: Government Power and a Free Society.

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