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.
Large, frequent and unsettling changes in government policies already have made private planning, especially for long-term investment, too risky for many private investors to bear. The results have been devastating.
Mindful that both the public and policymakers place heavy emphasis on jobs, I have been reviewing the Bureau of Labor Statistics employment data. At this point, most everyone knows that the official rate of unemployment has risen greatly since 2007 and lately has been stuck in the neighborhood of 10%.
Total nonfarm employment peaked in 2007 at 137.6 million, fell slightly in 2008 and then dropped precipitously in 2009 to 132 million, for a two-year loss of 5.6 million jobs. In 2009, total employment was approximately equal to its level in 2001, though the labor force had grown substantially in the interim, making the 20002009 period Americas second lost decade (the first being the 1930s during the Great Depression).
The sharp decline in nonfarm employment, which normally increases from year to year along with the labor force, has been bad enough. But when the components of aggregate employment are examined, we discover even worse news.
We find that the loss of employment has occurred entirely in the private sector, where employment fell from 115.4 million in 2007 to 109.5 million in 2009, a decline that took private employment back to its level at the end of the 1990s.
While private employment was collapsing, government payrolls have been increasing, ticking up slightly from 22.2 million in 2007 to 22.5 million in 2009, an increase of roughly 1.7 million above the 2000 level.
Monthly data for 2009 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.
While taxpayers (and unemployed former taxpayers) no doubt were hoping that Washington would focus on economic growth, much of the Obama administrations stimulus spending was directed toward ensuring that state and local government workers dont lose their jobs, while the normal appropriations process has been increasing spending for practically every department and agency of government.
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 return to 1929 levels until 1941, while millions were added to government payrolls during the New Deal. In both cases, the possibility that government employment crowds out private employment, rather than stimulating it, should not be dismissed.
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.
The jobs data tell a different story.