Job growth strengthens but insufficient to cure sick labor market

By Heidi Shierholz | December 2, 2011 - Economic Policy Institute

This morning’s release of the Employment Situation report by the Bureau of Labor Statistics showed that 120,000 jobs were added in November, enough to allow the share of the working-age population with a job to nudge up a tenth of a percentage point (from 58.4% to 58.5%). Revisions to earlier months were positive as well. However, the length of the average work week was flat, and average hourly wages declined. The unemployment rate dropped to 8.6%, but most of that decline can be explained by the drop in the labor force participation rate from 64.2% to 64.0%  (if the labor force participation rate had not declined in November and the people who made up the decline were in the labor force unemployed, the unemployment rate would have been 8.9%). All in all, this report showed very modest improvement in the labor market.  At this pace of job growth, it will be more than two decades before we get back down to the pre-recession unemployment rate.

MORE: Sort through updated graphs using data from today’s report

Long-term unemployment

The share of unemployed workers who have been unemployed for more than six months increased to 43.0 percent in November, still not far off its record high of 45.6 percent in the Spring of 2010. The number of workers who have been unemployed for more than six months decreased by 185,000 to 5.7 million in November (this is compared to a 1.2 million average in 2007, before the recession started).  This large increase is unsurprising given that there have been well over four unemployed workers per job opening since January 2009.

Labor force participation, unemployment, and the employment-to-population ratio

A year ago, in November 2010, the unemployment rate was 9.8%, and it is now 8.6%, a substantial drop.  How much improvement does that drop over the last year actually represent?   The labor force is now smaller than it was a year ago, by 67,000 workers, while the working-age population grew by nearly 1.9 million over that period.   This meant that the labor force participation rate dropped from 64.5% to 64.0% over the last year.  If the workers who comprise the drop in the labor force participation rate over the last year were in the labor force and counted as unemployed, the unemployment rate would be 9.4% right now instead of 8.6%.

At a time like this, with the labor force not growing at a steady pace, arguably the cleanest measure for assessing labor market trends is the employment-to-population ratio, which is simply the share of the working-age population that has a job. Over the last year, this measure increased from 58.2% to 58.5% — very little ground made up, considering that in the first quarter of 2007, this measure averaged 63.3%.   Check the EPI Blog later today for a more detailed analysis by Larry Mishel on how much of the improvement in the unemployment rate is due to an increase in employment versus a decline in participation.

Hours Flat, Wages Down

The length of the average workweek held steady in November at 34.3 hours. Average hours have thus far made up just two-thirds of what they lost in the first 18 months of the downturn (average hours were 34.6 in December 2007 and 33.7 at the low point in June 2009). This underscores that the lack of hiring right now results from a lack of demand, not businesses’ concerns about regulatory burdens or other issues. If businesses needed workers to meet demand but were reluctant to hire because of some other reason, we would see them strongly ramping up the hours of the workers they have. As it is, there are currently 5.6 million workers who want full-time work but who can only get part-time hours at their job because there is not enough work for them to do (see Table A-8).

Hourly wages decreased by 2 cents in November. In the last three months, wages have grown at a 1.7 percent annualized rate, and they have grown 1.8 percent over the last year. These rates remain far below the pre-recession growth rate (3.4 percent from December 2006 to December 2007), as persistent high unemployment has put strong downward pressure on wage growth. With hours flat and wages down, average weekly wages were also down slightly, by 69 cents.

Demographic breakdowns

Unemployment in November was 8.8 percent for those age 25 or older with only a high school education, and 4.4 percent for those age 25 or older with a college degree or more. While workers with higher levels of education have lower unemployment rates, all education categories have seen their unemployment rates roughly double over the downturn, running counter to the notion that there is high unemployment because employers are unable to fill their demand for skilled workers.

Considering additional breakdowns by age, race/ethnicity, and gender, we find that all major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath.  However, young workers and racial and ethnic minorities have been and continue to be hit particularly hard.

Industry breakdowns

As has been the case for more than three years, budget crises at the state and local level meant state and local jobs were slashed. In November, state government employment lost 11,000 jobs and local government employment dropped by 5,000 jobs.  There was also a loss of 4,000 at the federal level.  Over the last year, public sector jobs have declined at a pace of 23,000 per month, an enormous drain on the recovery.

All of the private-sector gains in November were in service-providing industries—private service-producing industries added 126,000 jobs while goods-producing industries lost 6,000.  Construction lost 12,000 in November, after staying essentially flat on average for the prior three months, while manufacturing gained 2000, after adding around 1,000 on average for the prior three months.  Durable goods manufacturing gained 10,000 in November and non-durables lost 8,000.

Retail trade always has many seasonal workers on its payrolls in October, November, and December.  However, because the fourth quarter hiring surge in retail happens every year (along with the subsequent loss of those workers in January), they are not reflected in the widely reported seasonally adjusted data, which attempt to capture underlying trends excluding seasonal factors.  On a seasonally adjusted basis, retail trade added 49,800 in November, following an average increase of 13,000 for the prior three months.  There are still close to a million (913,000) fewer employees in retail trade than there were when the recession started in December 2007.

Restaurants and bars added 32,700, higher than the industry’s 23,600 average of the prior three months.  Health care added 17,200 jobs, a substantial drop from its average growth rate of 32,100 in the prior three months. Temporary help services added 22,300, in line with the average gain of 21,000 in the prior three months.

Underemployment

The “underemployment rate” (the U-6 measure of labor underutilization) is the BLS’ most comprehensive measure of labor market slack. It includes not just the officially unemployed and the marginally attached (jobless workers who want a job and are available to work but have given up actively seeking work), but also people who want full-time jobs but have had to settle for part-time work. This measure decreased in November from 16.2 percent to 15.6 percent, due in large part to a 378,000 decline in the number of involuntary part-time workers to 8.5 million.  In November there were a total of 24.4 million workers who were either unemployed or underemployed (the 8.5 million involuntary part-time workers plus 13.3 million officially unemployed and 2.6 million marginally attached). Racial and ethnic minorities have been particularly hard hit by underemployment.

Conclusion

The U.S. is currently 6.3 million jobs below where it was when the recession started. But because the working-age population grows as the population expands, in the nearly four years since the recession started, we would have needed to add around 4.6 million jobs to keep the unemployment rate from rising. Putting these numbers together means the current gap in the labor market is roughly 10.9 million jobs. Filling that gap in three years—by late 2014—while still keeping up with the growth in the working-age population would require adding around 400,000 jobs every single month. Filling the gap in five years—by late 2016—would mean adding 275,000 jobs each month.  By comparison, over the last three months, the labor market added 143,000 jobs on average.

At the end of this year, federally funded extended unemployment insurance (UI) benefits are set to expire. If they aren’t renewed, 1.8 million workers will prematurely lose benefits in January.   Extending the federally funded unemployment insurance benefit extensions through the end of 2012 (when the unemployment rate is expected to be 8.5%) would not only extend a lifeline to the families of millions of long-term unemployed workers, it would also generate spending that would support well over half a million jobs. If this program is discontinued, the economy will lose these jobs. For more details, see Labor market will lose over half a million jobs if UI extensions expire in 2012.

— Research assistance by Nick Finio, Natalie Sabadish, and Hilary Wething