Private Sector Role in U.S. Job Growth Overstated

“Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics… By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody’s Analytics estimates $37 billion will be drained from the nation’s pocketbooks this year.”

Motoko Rich, Economy Faces a Jolt as Benefit Checks Run Out, New York Times, July 10, 2011

“In terms of jobs, between 2000 and 2006, the number of federal contract workers increased from 1.4 million to 2.0 million. This compares to 2.7 million federal employees. In short, 43% of all employees who do the government’s work are actually employed by private businesses.”

Kathryn Edwards and Kai Filion, Outsourcing Poverty: Federal contracting pushes down wages and benefits, Economic Policy Institute, February 11, 2009.


During the last half of the twentieth century, U.S. unemployment was kept generally low by a combination of private sector investment flows, the expansion of public sector employment at all levels of government, public sector investments in programs that increased private sector hiring (like the interstate highway system, Medicare, Medicaid, and the space program), and public sector investment flows into programs that diverted large numbers of potential workers from the private sector labor pool for varying periods of time (funding to increase high school attendance, programs like the GI Bill for diverting workers into educational activities, the federal welfare system, and generous government pension programs and increased funding for Social Security that intice older workers to leave the workforce and to leave earlier).

Taken together, all these elements of government spending substantially reduced the number of workers who were seeking jobs but could not find them – the definition of unemployment.

The private sector did only part of the work of reducing unemployment in the past and it can only do part of the work now.