If Private Sector Is Hiring, Why Is Jobs Market So Bad?

One of the biggest obstacles to job growth may actually surprise most Americans: as fast as the private sector is creating jobs, the government is shedding them. And the cuts are far from over.

Despite all the gloom and doom about the US economy, the private sector actually created 620,000 jobs over the past seven months, far faster than in the previous two recessions.

Job seekers wait in line to have their résumés reviewed at the second annual Anaheim/Orange County Job Fair.
Robyn Beck | AFP | Getty Images
Job seekers wait in line to have their résumés reviewed at the second annual Anaheim/Orange County Job Fair.

"The private sector is adding jobs now—that's good--because a year ago we were sliding toward oblivion,' says Heidi Shierholz, an economist at the Economic Policy Institute.

The problem, economists say, is that the pace of hiring in the private sector can't keep up with all the layoffs by cash-strapped federal and local governments.

"It puts more pressure on the private sector to compensate for it," says Christian Weller of the Center for American Progress and the University of Massachusetts.

Another complication: The economy shed so many jobs during the recession—nearly three million in the second half of 2008 alone—that even a sizeable gain in private sector hiring can't make much of a dent in overall unemployment.

"The pace of growth is slow," Shierholz says. "How long will it take to get back to anything that looks like a recovery?"

Were it not for the remaining 2010 Census jobs, state, local and federal government payrolls would be below their January 2009 low of 22.48 million.

"It's going to be a long, frustrating, different experience. "This is not a normal business cycle."" -Economist, Nomura Securities, David Resler

That level will certainly be breached in the coming months, as more Census jobs are shed and state and local governments follow through on job cuts.

Between 2009-2011, these governments are expected to slash 8.6 percent of their workers, according to a July outlook by three government associations.

"It's very likely they’re going to continue to shed jobs well in 2011," says Chris Hoene, reserach director at the National League of Cities, which helped prepare the report.

Another 200,000 jobs could easily disappear. That may not seem a lot, but consider that government payrolls never shrank during or after the 1990-1991 recession. In the 2001-2004 recession-recovery period, payrolls were never more than 85,000 below their expansionary peak.

"States didn't get their fiscal house in order when they had a chance," says Weller. "They thought the great, wonderful slush funds in the form of property taxes in the the boom years would never end."

Still, there are some grounds for optimism. The gains in private sector jobs have been broad-based, covering manufacturing, travel, health care, education, business services and even retail.

Not surprisingly, hard-hit sectors at the center of the 2008-2009 downturn—construction and financial--are still struggling, but nevertheless showing signs of stabilizing. Commercial construction, for instance, added 9,000 jobs in July.

"That's certainly a positive sign," says Weller.

Still, economists say it will remain an uphill climb.

"Its going to be a long, frustrating, different experience," says David Resler, chief economist at Nomura Securities. "This is not a normal business cycle."