Arnold Kling  

The Incredible Shrinking Private Sector?

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Michael Mandel writes,


The employment report shows that private sector employment in August 2009 was lower than it was in August 1999

Of course, August of 1999 was near the peak of the dotcom boom, and August of 2009 is near the trough (we hope) of the Great Recalculation. So it's hard to assess the secular trend.

Still, my guess is that private sector employment is headed down as a share of total employment, and my guess is that private health insurance is part of the problem. It represents an ever-larger tax on labor, and the public sector can just go ahead and pay it while private firms need to respond to labor costs.

Meanwhile, look at salaries. Chris Edwards writes,


The George W. Bush years were very lucrative for federal workers. In 2000, the average compensation (wages and benefits) of federal workers was 66 percent higher than the average compensation in the U.S. private sector. The new data show that average federal compensation is now more than double the average in the private sector.

My preference would be market-oriented health reform and the creation of real health insurance, which is bought by individuals and covers only insurable events (unexpected high expenses). But if it comes down to a choice, I'd rather have socialized health insurance with a robust private-sector job market than hang on to a private health insurance industry with a shriveled private-sector job market.

Of course, we could easily have health reform that keeps employer-provided health insurance and even makes matters worse. Odds are, that's where we are headed.


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COMMENTS (4 to date)
Mark writes:

"my guess is that private health insurance is part of the problem. It represents an ever-larger tax on labor".

And you're right that it is only part of the story. From an employer's perspective, you look not only at the cost of the hire but also the money you can make from it. With the prospect of higher taxes on that part of the equation, and as well of other governmental impositions of various kinds, it becomes all the more difficult to decide to hire anyone.

Jim writes:

So you'd like to "have socialized health insurance with a robust private-sector job market..."

Yeah, I'm sure you would. Unfortunately for you, these things are self-contradictory.

Tom West writes:

For all of us worried about the demise of the middle-class (especially lower middle class) that threatens to come with the weakening of unions and the drop in the cost of semi-skilled labor, maybe this is the solution.

For low-level jobs, the government generally pay a lot more than market rates (at the same time that high paying government jobs are pretty rare - they generally contract out). Thus the rise in the public sector allows a lot more Americans to have a middle-class lifestyle that they would never achieve otherwise. (If the labor costs start reaching middle-class levels, it's time to ship the work to China.)

Once again, the wealthier (in this case the taxpayers), help build a system that preserves social stability, which disproportionately benefits them anyway. (They have more to lose in social upheaval, increased crime, etc.)

Bob Calder writes:

The narrative should be all about large scale trends. Worrying about the drag of adding the uninsured to the overall social cost may end up being insignificant considering the differential in health cost between us and a place like Japan and the increased GDP resulting from increased wellness. The public health opinion appears to say that at any rate.

If employee productivity is high in an industry, there won't be much effect. But when the industry has low productivity per employee, measuring the effect of health and life insurance will become increasingly sensitive. So information jobs will be relatively unaffected, and the rest?

What will happen to the labor force?

I can't imagine why Jim thinks health insurance is coupled to the job market negatively. It would become much freer with the liberation of a lot more workers who are presently marginalized to the over 25 employee employer pool. Let's see, that's way less than half of the total number of employers isn't it? I think it's a question of their ability to be more productive in a freer job economy.

On the other hand, there may not be enough of them to make a difference.

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