The Great Reconfiguration
By Arnold Kling
This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from 2000 to 2009 (all in 2009 dollars). Next biggest was state and local government, which generated $151 billion in real wage gains.
Read the whole thing. Note that he is charting the total wage bill, not the individual wage rate. The total wage bill can go up because employment goes up, because wages go up, or both.
Over half of the increase in the wage bill over the past decade has been in the public sector rather than the private sector. About three-fourths of the increase has been in health care and education, rather than the rest of the economy. Some comments:
1. I frequently cite Robert Fogel, and I will do so again. The economic historian sees a long-term secular decline in the share of output devoted to food, housing, and durable goods. He sees a secular increase in education, health care, and leisure. It seems to me that if you view long-term economic trends through that lens, you cannot go wrong.
2. How does this trend relate to the balance between the public sector and the private sector? The Baumol’s Cost Disease story is that government gets “stuck” with the parts of the economy where productivity grows less rapidly than demand. Nick Schulz and I have a “new commanding heights” theory which is that government wants to take over the sectors of the economy that are most important, so that as governments have backed away from owning and heavily regulating basic manufacturing, they are focused on controlling health care and education.
If the presumption continues to be that education and health care are too precious to be left to the private sector, then the market economy is going to continue to shrink. The so-called capitalist countries are going to run into the socialist calculation problem. We are allocating resources in the health care sector and the education sector without having any basis for knowing what those resources truly cost or for valuing what those resources produce.
It could turn out that as the economy transitions toward a greater emphasis on health care and education that socialism is the way to go. Perhaps technocrats will do a good job, and perhaps markets do not provide much benefit. But I hope we get to test those ideas experimentally, by allowing some regions to use market mechanisms. If the chief reason that government takes over health care and education is because it can, that is not an outcome I would wish for.