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The Most Underreported Unemployment Statistic

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If you want to ruin your day and purge your social life, spend some time digging through data at the Bureau of Labor Statistics. It's as unspectacular as it sounds.

But in doing so, you'll spot an important jobs-market trend that the media rarely cover.

Year to date, the private sector has added 650,000 jobs. That's slow, but not terrible. Yet the government sector -- even after adjusting for the short-term census hiring and firing -- has shed 224,000 jobs. And the private sector is roughly five times larger than the government sector, so in percentage terms, the plunge in government jobs is more extreme than it looks here.

Now compare that to our last recovery after the dot-com bubble recession. From November 2001 to November 2003, the private sector shed 884,000 jobs, while the government sector added 174,000. The result, of course, was still a net loss. But the job dynamic back then was almost the opposite of today. Eight years ago, government jobs softened the blow of the private sector's losses. Today, the private sector is making up for lost government jobs.

Why is this happening? In short, government tax revenue -- particularly at the state and local level -- has fallen off a cliff, while the financial condition of the private sector has rebounded nicely.

As the Center on Budget and Policy Priorities recently noted, "State tax revenues were 8.4 percent lower in the 2009 fiscal year than in 2008, and an additional 3.1 percent lower in 2010, while the need for state-funded services did not decline." The resulting disintegration of state finances has begun spiraling out of control. In downturns past, state and local governments could keep it together by pushing obligations out further into the future. But when there's no more money, there's no more money. Today, the bills are starting to come due, and the jobs are getting chopped. It's ugly.

In contrast, corporations have done a remarkable job quickly adjusting to the recession and getting back on track. Airlines are a great example. A few years ago, there was hardly an industry in worse shape than airlines. Fuel costs were surging. Seats were ominously empty. Blunt-force competition drove profits into the floor.

But that pain drove change. Competitors merged. Unprofitable flights were taken out of service, which slashed capacity and gave surviving airlines the renewed advantage of pricing power. Before long, the industry was reborn. Today, it's expanding.

This year, the airline industry will post its first profit since 2007 -- only its third profitable year in the last decade. Companies like United Continental Holdings (Nasdaq: UAUA  ) and US Airways (NYSE: LCC  ) have been among the biggest stock gainers of the past year. They've figured out how to survive -- and thrive -- amid a recession. Same for companies like Ford (NYSE: F  ) and even Sirius XM (Nasdaq: SIRI  ) , both of which have remained flexible and pushed costs more in line with revenues. Corporations are ready to start growing again -- and they are -- at a time when many government bodies are undergoing job-slashing contractions.

After a July jobs report that showed the third-largest private jobs gain in more than two and a half years offset by the largest drop in government workers during the same period, Ohio Rep. John Boehner (R) sounded off. "After another disappointing jobs report ... it's time for President Obama to listen to the American people and face up to the fact that his 'stimulus' policies aren't working. How many more times do families and small businesses have to ask 'where are the jobs' before President Obama changes course?"

Fair enough. But there lies the irony of our unfortunate reality. Many people want smaller government, and point to dismal jobs numbers to back up their reasoning. But what's causing those dismal jobs numbers? Smaller governments.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Ford Motor is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (12) | Recommend This Article (58)

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  • Report this Comment On October 12, 2010, at 5:26 PM, mdk0611 wrote:

    Leaving Boehner's election year comment aside, why would we celebrate an increase in government jobs? While this might be painting with a broad brush, how much do they do to increase the nation's economic output, efficiency or safety? And the future benefit liabilities they create, at a vastly higher scale than the private sector, can no longer be kicked down the road. Look at the scene from "Waiting For Superman" with the "rubber room" for NYC teachers. This helps the economy?

  • Report this Comment On October 12, 2010, at 8:13 PM, SteveVaughan100 wrote:

    Investment in infrastructure - roads, airlines, high-speed rail, high speed internet - allows businesses to flourish, given the right tax environment.

    The current problem isn't which party is in power - it's more due to the fact that our current tax policy, manufacturing policy, infrastructure policy, etc. are made in a hodge-podge fashion due to lobbyists and electioneering.

    In order to compete with China and India, we need to establish fair and equitable trade policies that are not beholden to campaign contributors, but rather to the long-term growth of our country.

    Quick, what's our five-year plan? Our ten-year plan? While these are probably snooze-inducing for the majority of the electorate, they're incredibly important to America remaining economically viable in the 21st Century. You can bet China has a manufacturing policy.

  • Report this Comment On October 12, 2010, at 8:54 PM, xetn wrote:

    My take on this is that no amount of government stimulus will result in real sustainable private sector jobs, for the simple reason that government does not know how to create jobs. Sure, it can hire 4 million men to dig holes in the ground and another 4 million to fill them in. This would create 8 million jobs (by government count) but it would be just another transfer of wealth. That is what all government efforts are. A theft of wealth from productive to non-productive.

    What is truly holding back employment is the huge uncertainty in the near future of what the next regulation or tax (read Cap N Trade, ObamaCare, tax increases) and all kinds of new regulation.

    What we really need to happen is gigantic cuts in government spending, gigantic tax cuts and a complete elimination of government regulation. It won't happen of course and we will continue on the road to economic collapse.

  • Report this Comment On October 12, 2010, at 10:32 PM, jonpete69 wrote:

    How many of those private sector jobs are from the birth/death model. These are estimated jobs that the government believes are created by new businesses that haven't hit the system yet. Last Feb. the Dept. of Labor had to eliminate 800,000 of these estimated jobs from the prior years numbers when they failed to materialize. How many are included in this years numbers?

  • Report this Comment On October 13, 2010, at 9:24 AM, slpmn wrote:

    A big chunk of the loss in government jobs is due to census workers leaving the payroll.

  • Report this Comment On October 13, 2010, at 9:41 AM, cmfhousel wrote:


    As the article notes, the losses are after all census hires and fires are stripped out.


  • Report this Comment On October 13, 2010, at 10:27 AM, slpmn wrote:

    Oops, sloppy reading on my part.

    On a related note, though, David Brooks of the NY Times has a piece today that the anti-gov folks should love.

    I have to say based on that, there seems to be plenty of bloat yet to trim from government budgets. However, in the real world, the trimming is unlikely to be done where needed (i.e. excessively generous compensation and benefit packages), while necessary services are cut and projects cancelled so city workers can retire at 50 year old on 90% of salary.

  • Report this Comment On October 13, 2010, at 11:56 AM, mtf00l wrote:

    My opinion; State and local governments are suffering and cutting jobs.

    The bloat is the Federal government and it's still growing.

  • Report this Comment On October 14, 2010, at 12:28 AM, burrowsx wrote:

    The government has been blinded by outsourcing. Fewer government employees are nominally employed, but shifting the jobs to the private sector merely means that we are paying private sector salaries instead of civil service and military salaries. The shift also means that we have a new layer of contract supervisors, overseeing the private work, without expertise in the contract effort -- just expertise in contract fulfillment.

    Republican efforts to privatize government were intended to make government more efficient, and to reduce the costs of government. The effort has done neither. Instead, it has removed critical expertise from government through the "revolving door"; it has blinded the government's knowledge of its own workings; it has increased the number of people employed on government projects, and opened all aspects of government to the Defense Department cost-plus wastefulness.

  • Report this Comment On October 14, 2010, at 12:42 AM, CircleGame wrote:

    burrosx made an important point: even if you believe that government employees are lazier than private employees, you must remember that the efficiency of private contractors is fully applied to maximize profits taken from your taxpayer pockets. In other words, we'd better be sure that we have enough good, motivated, honest government employees to oversee the supposedly virtuous contractors (and civil servants and their regulations helps reduce bribes to our elected representatives, which helps preserve our freedoms.

    Still, we should indeed question and streamline many of the laws and regulations that those representatives pile up, making the bureaucracy unnecessarily large and inefficient. Just ideologically outsourcing everything to bypass real laws will lead to both increased tax costs and lawlessness.

  • Report this Comment On October 18, 2010, at 3:32 PM, mzkitti wrote:

    Before you blame the government for everything pertaining to jobs in this country...

    do some research to see how many jobs were and are still being outsourced to other countries.

    It will r eally blow your mind. Ten years of outsourcing... some of our tech companies like HP- to the tune of 30,000 jobs being outsourced when Carly Fiorina was running HP.

    Fiorina is hoping that by attacking Barbara Boxer, Californians will forget about her failed leadership of HP. When Fiorina laid off 30,000 workers and was the outsourcing queen, saying: "perhaps the work needs to be done somewhere else." Fiorina tripled her salary and bought a $1 million yacht and five corporate jets. Fiorina has yet to explain how an HP subsidiary sidestepped the law to sell printers to Iran during her tenure.

  • Report this Comment On January 12, 2011, at 1:29 PM, ngannet1221 wrote:

    OK, big declines in government jobs - is anyone hazarding a guess as to when that will stabliize? Wtihout arguing the politics, I am wondering if there is a way to predict a "bottom" in loss of government jobs.

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