Today’s job report from the Labor Department, the first under President Donald Trump (but largely reporting on conditions in President Obama’s last month), reveals a job market on the same modest growth course that prevailed in the last year of President Obama’s term.
The nation’s employers added 227,000 jobs in January, stronger than average growth in the fourth quarter of 2016 of 148,000. Importantly, the labor force participation rate ticked up to 62.9 percent, well below its pre-recession level of 66.0 percent (December 2007), but up from its low point of 62.4 percent in September 2015.
Recently, Trump’s press secretary Sean Spicer has questioned the official unemployment rate (now at 4.8 percent after ticking up from 4.6 percent in January) as an accurate barometer of the labor force. Ironically, if the unemployment rate were the only important measure of the economy, Trump’s economic work would be largely done. Over the last forty years, only President George W. Bush was blessed with an unemployment rate this low at the start of their term.
But January’s data also indicates that there is still a substantial distance from achieving something approaching full-employment. A broader measure of unemployment that includes those who are underemployed or who have stopped looking for work stood at more than 1 in 11 working age Americans (9.4 percent)—still much greater than it stood at the end of 2007 (8.8 percent) or 2000 (6.9 percent). Average hourly earnings slowed to 2.5 percent annual growth down from 2.9 percent.
President Trump has set a goal of creating 25 million jobs over the next ten years to make up for these gaps—a goal that faces many obstacles. Absent a wave of immigration or a massive increase in work by senior citizens, even maximum employment of an aging population would leave Trump short 9 million jobs.
The Missing “G” in Economic Growth
Moreover, Trump is already cutting off possible growth in one of the worst performing sectors in the U.S. economy—government, a sector which lost 10,000 jobs in January. President Trump issued an executive order freezing non-military federal hiring, with only few exceptions for positions that directly impacted federal safety like medical workers at Veterans Affairs hospitals. And, there are rumors that his first budget will reduce funding for many federal programs that support state government operations.
Just look at the performance of government versus private sector employment over the course of the recent recovery. Figure 1 compares growth in employment among federal, state, and local governments and their private sector counterparts since September 2010 (after the once a four year employment boom provided by the Census faded away). Private sector payrolls are now 14 percent higher than they were earlier in the recovery. Likely as a result of sequester restrictions on federal spending, federal payrolls were cut by five percent by 2014 and still are lower than they were at the start of the recovery. Local and state workforces have remained flat even though they are serving a growing population.
The shrinking government workforce has long been a drag on the job market, as rhetoric about the size of government has missed basic facts. Federal employees represent just 1.9 percent of all American workers versus 2.1 percent when Obama entered the White House, and 2.9 percent when Ronald Reagan left office in January 1989. And, with only 15 percent of federal employees working in the D.C. area, cutting federal jobs in rural communities where federal jails, veterans centers, and natural resources employers can be some of the few providers of good jobs. Strong affirmative action laws have made government employment a ramp to the middle class for communities of color, who have been hit hardest by the decline in government jobs.
To make matters worse, past hiring freezes have not worked as intended. According to the Government Accountability Office, prior hiring freezes actually increased government costs as overtime costs increased, and government lost revenue and could not collect debts because they were short staffed. Hiring limits also forced government to rely on expensive contractors that already collect $500 billion per year in tax dollars and who now soak up fifteen percent of government spending. Trump will increase reliance on federal contractors just as Congress is set to reduce the government’s contracting office’s ability to ensure that contractors adhere to basic labor law standards.
How Large Is the Government Employment Gap?
Based on our calculations, at the end of 2007 (the last employment peak), government made up 16.1 percent of all jobs. Today, after years of economic growth, government jobs are now 15.3 percent of all employment. If government was functioning at a similar level, there would be another 1.2 million jobs. It’s hard to see President Trump achieving his aggressive 25 million jobs goal having taken that many government jobs off the table.