Economic Indicators | Jobs and Unemployment

February rebounds, but road to jobs recovery remains years long

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February was the first month of the recovery where many of the indicators in the latest Bureau of Labor Statistics Employment Report are positive, suggesting the jobs recovery is gaining traction.  February caps off 12 straight months of private-sector job growth with a relatively strong 222,000 private payroll jobs added.  However, state and local budget problems continue to be a substantial headwind to growth, with the loss of 30,000 more such jobs last month.  Furthermore, some of February’s strong overall growth is simply a positive rebound effect after bad weather in January kept numbers low.   Over the last two months, job growth averaged just 128,000.   The further bad news is that even at February’s growth rate, it would still take until around 2019 to get back to the pre-recession unemployment rate, given the size of the jobs gap in the labor market.  This report also marks another bleak benchmark, with the unemployment rate now above 8.5% for two straight years.

Job growth over the last year, but the workforce left behind

The labor force grew by 60,000 in February, and the labor force participation rate held steady at 64.2%, its lowest point in this recession. 

Remarkably, despite payroll job growth over the last year, the labor force is now smaller than it was a year ago (by 312,000 workers), despite the fact that the working-age population grew by 1.9 million.   Consequently, the proportion of the population in the labor force—i.e., people who are working or unemployed—dropped by 0.6 percentage points over the same period. This is comparable to the drop in unemployment.  If the labor force participation rate had held steady over the last year, there would be roughly 1.5 million more workers in the labor force right now.  These workers are instead on the sidelines.  If these workers were unemployed but still in the labor force (i.e., looking for work), the unemployment rate would be 9.8% right now instead of 8.9%.  In other words, the improvement in the unemployment rate over the last year (from 9.7% to 8.9%) is largely due to would-be workers deciding to sit out due to weakness in the labor market.  The employment-to-population ratio, a broader measure of the share of the working-age population that has a job, actually declined slightly over the last year, from 58.5% to 58.4%.  Improvements in the unemployment rate are only good news if a larger share of the potential workforce actually finds work, which is not happening.

Hours and earnings

The length of the average workweek held steady in February at 34.2 hours.  Improvement in the length of the workweek has stalled, with no net growth since last May.  The average workweek has thus far made up just slightly over half of what it lost in the first 18 months of the downturn (its low point was 33.7 hours in June 2009).   Average hourly wages grew little in February (by one cent), and have grown at a 1.9% annualized rate over the last three months.  Weekly wages increased by only 34 cents, from $781.81 to $782.15, and have also grown at a 1.9% annualized rate over the last three months.  

Industry sectors

State and local budget problems again dragged down overall job growth, with state government employment losing 12,000 jobs and local governments dropping 18,000.  Since their employment peak in August 2008, state and local governments have shed 450,000 jobs (82,000 state jobs, 368,000 local).

The private sector added 222,000 jobs.  Of these gains, 152,000 jobs were in private service-providing industries. and 70,000 were in goods-producing industries.  Manufacturing gained 33,000 jobs, another month of positive news but not as strong as the 53,000 added in January.  Construction increased in February by 33,000 jobs, though improvement in this sector was to some extent a positive rebound after bad weather that kept growth low during the reference week in January.  Over the last two months, construction employment grew by 5,500 jobs per month, on average.  

Transportation and warehousing was up 22,000 jobs in February, also likely experiencing some positive rebound after being negatively affected by bad weather last month—though January’s data may also have been negatively affected by seasonal adjustment factors following the holidays.  Over the last three months, transportation and warehousing added 9,200 jobs per month, on average.  Temporary help services increased by 16,000, also probably affected in part by the weather turn-around.  Over the last two months, temporary help services added 5,300 jobs per month, on average, lower than its average of 32,000 per month in the fourth quarter of 2010.  Leisure and hospitality saw increased employment in February (+21,000), and has gained 9,000 jobs, on average, over the last two months.

Retail trade decreased by 8,000 in February, a surprise since consumer spending is reviving somewhat. The retail sector has added 7,100 jobs, on average, in the prior three months.  Health care added 34,000 jobs, an increase over the previous three-month average of 19,000. 

Long-term unemployment

The share of unemployed workers who have been unemployed for over six months increased slightly in February, from 43.8% to 43.9%, and remains near its high of 45.6% last May.  The long-term unemployed share is one of the highest on record, and there are still six million workers who have been unemployed for longer than six months.  These dramatic figures are unsurprising given that there are still 4.7 unemployed workers per available job

Underemployment

The underemployment rate (i.e., the U-6 measure of labor underutilization) is a more comprehensive measure of labor market slack than the unemployment rate because it includes not just the officially unemployed but also jobless workers who have given up looking for work and people who want full-time jobs but have had to settle for part-time work. (Note, however, it does not include people who are underemployed in the sense that they have had to take a job that is below their skills, training, or experience level.)  This measure improved in February, to 15.9%,due to improvements across the board—a decline in the number of unemployed (-190,000), a decline in the number of involuntary part-time workers (-67,000), and a decline in the number of marginally attached (-54,000).   However, there were still a total of 24.8 million workers who were either unemployed or underemployed in February, nearly double the 12.9 million in 2007. 

Demographic breakdowns of unemployment

All major groups have experienced substantial increases in unemployment over this downturn, though men, racial and ethnic minorities, young workers, and workers with lower levels of schooling have gotten hit particularly hard. 

  • In February, unemployment was 17.7% among workers age 16-24, 7.9% among workers age 25-54, and 6.4% among workers age 55+ (increases of 6.0, 3.8, and 3.2 percentage points, respectively, since the start of the recession in December 2007).
  • Unemployment was 15.3% among black workers, 11.6% among Hispanic workers, and 8.0% among white workers (increases of 6.3, 5.3, and 3.6 percentage points, respectively, since the start of the recession).
  • Unemployment was 9.3% for men, compared
    to 8.5% for women (increases of 4.2 and 3.6 percentage points since the start of the recession).
  • For workers age 25 or older, unemployment reached 9.5% for high school educated workers and 4.3% for those with a college degree (increases of 4.8 and 2.2 percentage points, respectively, since the start of the recession). 

Conclusion

Today’s report caps off 12 straight months of private-sector job growth, with the labor market adding 1.3 million jobs over that period.  However, the labor market remains 7.5 million payroll jobs below where it was at the official start of the recession three years and two months ago.  And this number vastly understates the size of the gap in the labor market by failing to take into account the fact that simply keeping up with the growth in the working-age population would have required the addition of another 3.8 million jobs over this period.  This means the labor market is now 11.3 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007).  Despite the job growth of the last year, which averaged 106,000 per month, we are near the bottom of a very large hole, and are climbing out at what continues to be a relatively slow pace.  To achieve the pre-recession unemployment rate in five years, the labor market would have to add around 285,000 jobs every month for that entire period. The current jobs numbers underscore the fact that deep cuts in federal spending are extremely premature—with the unemployment rate above 8.5% for two straight years now, we should instead be having discussions of substantial additional stimulus spending. 

—Andrew Green provided research assistance.


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