U.S. Economic Recovery is Weaker Than Figures Suggest Because the Number of Industries Receiving Government Subsidies is Expansive; the Most Heavily Subsidized Health Services Industry Generated 38,000 Jobs, or More Than 22 Percent of the Total Jobs Created in June 2012

Why Private Job Creation Is Even Slower Than it Looks

August 3, 2012

CNBC - Private-sector job growth relied on to fuel the employment recovery is even weaker than it looks, according to one economic expert who says government subsidies distort the true picture.

The Bureau of Labor Statistics on Friday put non-government nonfarm job creation in July at a much better-than-expected 172,000, which helped lift investor sentiment even though the total headline unemployment rate rose to 8.3 percent. (The total nonfarm payrolls gain was 163,000 as government lost 9,000 jobs.)

But Alan Tonelson, research fellow at the U.S. Business and Advisory Council, said the number isn't as good as it looks because the heavily subsidized health services industry generated 38,000 jobs, or more than 22 percent of the total.

"It's certainly weaker than it appears if we believe that the recovery and the entire U.S. economy should be propelled overwhelmingly by the private sector, by private capital, by private markets, by market forces," Tonelson said in an interview.

"That's not to say that we don't need government spending or that government doesn't provide many useful services," he added. "But I don't think most Americans and I'm certain most economists would not argue that the strength of the U.S. economy and its future prospects are determined significantly by the strength of the public sector."

Though the number of industries that receive government subsidies is expansive, Tonelson boils his research down to the most identifiable in government employment data: Health care services, private educational services and social assistance agencies.

Since the recession, as defined by the National Bureau of Economic Research, ended in June 2009, such jobs have accounted for 1.144 million of the total 3.384 million private sector jobs created.

That means that the non-subsidized private sector generated 2.24 million jobs - considerably less than the more than four million positions President Obama trumpets on the campaign trail.

Still, Tonelson maintains that he has no political axe to grind.

Rather, he believes policy makers and the public need to make sure they're getting the clearest picture possible about the real strength of the private sector.

"All I'm trying to do is to point out that because government's role has by any objective measure grown in the post-Lehman period, U.S. government statistics need to do a much better job of taking that into account," Tonelson said. "Because if your data is not accurate than policy makers at the very least are flying partially blind. That can't possibly lead to the best policy decisions."

Tonelson's observations dovetail interestingly with a recent survey showing that 59 percent of Americans believe government "has control over job creation."

The survey, by executive search firm Korn/Ferry, found that 64 percent believe government spending is a "good" way to create jobs, but not the best. More favored ways include private spending on sustainable energy, information technology and infrastructure.

"We have to end this recession. That's the overall priority," Tonelson said.

He pointed out that his research could be utilized as political fodder for either side.

"These findings could be used by folks who you might categorize as left of center to show how crucial government's role has become," he said. "It also could be used by folks to the right of center for how this may explain why the private sector's performance has been so relatively weak, and why this recovery, generally speaking, has been so much weaker than previous recoveries."