The United States Is the New Europe

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Many of President Obama's advisers want America to emulate Europe. That is, after all, where health care is free, where taxes are high but no one seems to complain, and where the brightest students go to work for the government because the private sector is simply disappearing.

The president's advisers are seeing their wishes come true. While the government is hiring, the private sector is losing millions of jobs rather than creating them.

Nowhere is this more true than in the hard-hit construction industry. Its 25% unemployment rate could rise even higher given this week's news. On Tuesday, the administration issued final regulations for an executive order issued by Mr. Obama on project labor agreements. The executive order favors union labor over nonunion shops on large federal construction projects-those worth over $25 million each. The order will take effect on May 13.

According to the new rule, "every contractor and subcontractor engaged in construction on a construction project agrees, for that project, to negotiate or become a party to a project labor agreement with one or more labor organizations."

The language might make more sense when translated into German or French. Under project labor agreements, all employees have to receive union-approved wages and benefits, even if they do not belong to unions. This drives out small businesses from competing for these projects; raises their cost to the taxpayers; and funnels a larger stream of union dues from taxpayers' pockets to union treasuries.

With a nationwide unemployment rate of 9.7%, this executive order makes job growth in the private sector harder to come by. Taxpayer dollars don't go as far because projects are more expensive, and small businesses, the engine of job growth, hire fewer workers.

Private sector employment peaked at 115 million in 2007, and now stands at 107 million. In contrast, the share of public employment has been rising over the past decade. In 2000 15.7% of civilian employment was government jobs, and now the share stands at 17.3%. So it might be more realistic for the unemployed to seek government jobs, with higher compensation-pay and benefits-and better security. Just like Europe.

The rising share of government employment is due to two factors. First, as has been widely reported, employment in private-sector America is shrinking, perhaps for reasons larger than the recession that began in 2008.

At the same time, employment in federal, state, and local government has been growing. There were 21 million government workers in 2000, and the number increased steadily throughout the recession, peaking at 22.6 million in May, 2009. Now the level is a few thousand lower, at 22.5 million. The growth is primarily due to state and local government employment, which has increased from 77% of all government jobs in 1970 to 87% today.

Not only did most government workers not suffer job losses during the recession, their levels of compensation are higher than those of private sector workers. It used to be that government workers were paid less than private sector workers, on the grounds that government work was more secure.

No longer. According to the Commerce Department's Bureau of Economic Analysis, average full-time wage and salary earnings in the private sector in 2008, the latest available, were $50,000, while for civilian federal government workers they were $79,000.

When benefits such as vacation, pensions, sick leave, and health insurance were taken into account, the gap widened. Compensation per full-time employee in the private sector was $60,000, and in the civilian federal government it was $120,000. And there is a lower risk of losing a government job.

Between 2001 and 2008 the amount of work performed under private contracts with the government more than doubled, as the Bush administration tried to cut costs. But Mr. Obama wants to reverse the trend of contracting out federal government work to the private sector-except when it favors unions.

In March, the administration issued draft regulations to specify which government jobs could be contracted out and which ones had to be performed by government workers. Comments are due by the end of May, and the administration hopes to publish the guidelines in final form by the fall.

Naturally, this effort to reduce contracting out has the full support of the largest union of public-sector workers, the American Federation of State, County, and Municipal Employees, one of the fastest-growing labor organizations. AFSCME has multiple sections on its Web site ( attacking contracting out of government jobs.

Contracting out results in fewer union workers and fewer dues payments the union treasury, whence union officers' salaries are paid. In 2006 AFSCME spent 44% of its budget, almost $70 million dollars, on representational activities, political activities, and lobbying.

According to the Center for Responsive Politics, AFSCME contributed $45,000 and $44,000 respectively to the election campaigns of then-Senators Barack Obama and Hillary Clinton in the 2007-2008 election cycle, and $12,000 to the campaign of then-Representative Hilda Solis, now Secretary of Labor.

When the government does contract out jobs, private-sector employers are increasingly subject to scrutiny and regulations that work against small business and help larger unionized firms. The Davis-Bacon and Service Contract Acts and their associated regulations require contractors to pay "prevailing wage rates." The new project labor agreements will ensure that workers in the construction sector are paid wages even higher than Davis-Bacon rates.

It's not easy to destroy incentives to hire in the largest economy in America. But Mr. Obama's advisers are mastering the art. You can thank them the next time you wonder why it is hard to find a job in the private sector.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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