This morning’s release of the Employment Situation report by the Bureau of Labor Statistics showed the addition of 117,000 jobs in July, a rate of job growth that keeps us firmly in low gear and still very much on track for persistent high unemployment. Notably, the decline in the unemployment rate from 9.2% to 9.1% was entirely due to a drop in labor force participation, not an increase in the share of workers with jobs.

Both labor force participation and employment-to-population ratio hit bottom

The labor force participation rate declined to 63.9% in July, its new low of the downturn. Remarkably, the labor force is smaller than it was before the recession started (by more than 700,000 workers), though the working-age population grew by over seven million in that time. There are currently 2.8 million “marginally attached” workers—workers who want a job, are available to work, but have given up actively seeking work.  If these workers were in the labor force and counted as unemployed, the unemployment rate would be 10.7% right now instead of 9.1%.

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. This measure declined in July to 58.1%, a new low point of the downturn. A lower unemployment rate is only good news if a higher share of the potential workforce finds work, which is not happening.

Hours and Earnings

The length of the average workweek held steady in July at 34.3 hours. The measure of average hours has seen net growth of only one-tenth of an hour over the last year, and has thus far made up just two-thirds of what it lost in the first 18 months of the downturn (its low point was 33.7 in June 2009). The fact that hours have not made up more ground clearly shows that a lack of demand explains why businesses haven’t ramped up hiring. If businesses had work to be done but weren’t hiring new workers—either because they couldn’t find workers with the right skills or because they were wary of the potential burdens of laws like health care or regulatory reform, as some will claim—they would strongly ramp up the hours of the workers they have, which isn’t happening.

Wage growth was stronger in July, with average hourly wages growing 10 cents. In the last three months, wages have grown at a 3.5% annualized rate and they have grown 2.3% over the last year.  This remains far below the pre-recession growth rate.

Industry Breakdowns

Data for the public sector again reflected  the ongoing state and local budget problems, with state government employment losing 23,000 jobs and local government employment dropping by 16,000.  According to the Commissioner’s Statement, the state government decline was due almost entirely to the partial government shutdown in Minnesota. But even excluding these losses, state and local governments have shed over half a million jobs since their peak in August 2008.

The private sector added 154,000 jobs in July. Of these gains, 112,000 were in private service-providing industries and 42,000 were in goods-producing industries. Manufacturing gained 24,000 jobs, after adding an average of 15,000 over the prior three months. Of manufacturing’s gains, 12,000 were in motor vehicles and parts, some of which may be due to seasonal-adjustment factors related to plant shut downs for retooling. Construction grew by 8,000 in July, after adding an average of 1,000 over the prior three months.

Temporary help services experienced essentially no growth in July (+300 jobs), following three straight months of declines. The lack of growth in temporary help is not a promising sign for future hiring.  Leisure and hospitality added 17,000, though restaurants and bars continued to be flat after strong growth in 2010 and early 2011. Employment in retail trade increased by 26,000 in July, matching the average of the prior three months. Health care added 31,000 jobs, stronger growth than the 23,000 it added on average in the prior three months. 

Underemployment and Long-term unemployment

The underemployment rate (the U-6 measure of labor underutilization) is the BLS’s most comprehensive measure of labor market slack: it includes not just the officially unemployed and the marginally attached but also people who want full-time jobs but have had to settle for part-time work. This measure decreased in July from 16.2% to 16.1%, due in large part to a 156,000 decline in the number of “involuntary” part-time workers. In July there were a total of 25.1 million workers who were either unemployed or underemployed.

The share of unemployed workers who have been unemployed for more than six months held steady at  44.4%, not far off its record high of 45.6% in May 2010. The number of workers who have been unemployed for more than six months decreased by 104,000 to 6.2 million.

Demographic breakdowns

All major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath. However, some segments have gotten hit particularly hard: young workers, workers with lower levels of schooling, racial and ethnic minorities, men, and workers with disabilities.

• In July, unemployment was 17.4% among workers age 16–24, 8.0% among workers age 25–54, and 6.9% among workers age 55+ (up 5.7, 3.9, and 3.7 percentage points, respectively, since the start of the recession in December 2007).
• Among workers younger than age 25 who are not enrolled in school, unemployment over the last year averaged 21.5% for those with a high school degree, and 9.7% for those with a college degree (reflecting increases of 9.5 and 4.3 percentage points, respectively, since 2007).
• Among workers age 25 or older, unemployment in July was 9.3% for those with a high school education, and 4.3% for those with a college degree (up 4.6 and 2.2 percentage points, respectively, since the start of the recession).
• Unemployment in July was 15.9% for African American workers, 11.3% for Hispanic workers, and 8.1% for non-Hispanic white workers (up 6.9, 5.0, and 3.7 percentage points, respectively, since the start of the recession).
• Unemployment was 9.6% for men, compared with 8.5% for women (up 4.5 and 3.6 percentage points, respectively, since the start of the recession).
• Workers with a disability had an unemployment rate of 16.8% in July, compared with 9.0% for workers without a disability (up 6.4 and 3.1 percentage points, respectively, since July 2008). (Data on labor market outcomes by disability status are not seasonally adjusted and are only available back to the summer of 2008.)

Conclusion

The labor market is currently 6.8 million payroll jobs below where it was at the official start of the recession over three and a half years 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 4.3 million jobs over this period. This means the labor market is now 11.1 million jobs below the level needed to restore the prerecession unemployment rate (5.0% in December 2007). To get back to the pre-recession unemployment rate by the middle of 2014, we would need to add roughly 400,000 jobs every single month between now and then.   In other words, we need job to grow more than three times as fast as occurred in July just to make it back to the pre-recession unemployment rate three years from now.

The labor market is the basis for the U.S. economy.  Given the dire employment situation, Washington should be focused like a laser on restoring the economy to its potential and generating jobs.  Instead, lawmakers have crafted a debt ceiling deal that will slow growth further and make joblessness worse.

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