Commentary | Economic Growth

Jobs Picture for October 2, 2009

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On October 2, the Bureau of Labor Statistics released the employment situation report for September, marking the 21st month of consecutive job loss, the longest streak in 70 years.  The report showed that while losses are moderating from the huge drops of earlier in the year, they remain substantial—263,000 jobs were shed in September and the unemployment rate rose to 9.8%.  The employment loss was larger than expected, and the only reason unemployment did not rise more was the fact that 571,000 workers dropped out of the labor force.  Remarkably, the labor force is now 615,000 workers lower than it was a year ago, dropping 0.4% rather than rising around 1.0% as might be expected. 

Since the start of the recession in December 2007, an estimated 8.0 million jobs have been lost.  This number includes both the 7.2 million jobs lost in the payroll data as currently published plus the announced preliminary benchmark revision of -824,000 jobs to last March’s employment level.  And even this number understates the magnitude of the hole in the labor market by failing to take into account the fact that the population is always growing.  To keep up with population growth, the economy needs to add approximately 127,000 jobs every month, which translates into 2.7 million jobs over the 21 months since the start of the recession. This means the labor market is currently 10.7 million jobs below what’s needed to return to the pre-recession unemployment rate.  To demonstrate how large this gap is and the level of growth needed to bridge it, consider the following: in order to fully fill in the gap in the labor market by September 2011, employment would have to increase by an average of 573,000 jobs every month for the next two years straight. 

The good news is that the American Recovery and Reinvestment Act (ARRA) is providing a big boost to the labor market.  Over the last three months, the labor market has shed an average of 256,000 jobs per month, around a third of the 691,000 jobs lost per month on average in the first quarter of this year.  The ARRA is likely saving or creating between 200,000 and 250,000 jobs a month; without the ARRA, losses in September would likely have been nearly double what they actually were.

However, due to continued job loss, the pain in the labor market is deepening.  Although layoffs are moderating significantly, hiring is not yet picking up, so unemployed workers are facing ever-lengthening spells of unemployment.  In September alone, an additional 450,000 jobless workers crossed the six-months-unemployed threshold.  Of the 15.1 million unemployed workers in this country, 5.4 million (over a third) have been jobless for over six months.  This is 3.5% of the total labor force—far surpassing the previous peak of 2.6% set in June 1983.  

Furthermore, the official unemployment count understates slack in the labor market by excluding both the jobless who want work but have given up looking (“marginally attached” workers) and people who are working but can’t get the full-time hours they want (“involuntary part-time” workers).  In September, there were 2.2 million marginally attached workers, 9.2 million involuntary part-timers, and 15.1 million unemployed workers in the United States, for a total of 26.6 million workers who are either unemployed or underemployed.  This represents 17%—more than one in six—of U.S. workers. 

Young workers have been hit particularly hard during this downturn, with those age 16-24 seeing an unemployment rate of 18.1% in September, up 6.5 percentage points from the beginning of the recession.  Since new entrants to the labor market are ineligible for unemployment insurance, this can mean an additional burden on the parents and other family members of young unemployed workers.  All age groups have seen increases in unemployment this recession—in September, unemployment was 9.1% for workers age 25-54 and 6.8% for those age 55 and over, up 5.1 and 3.7 percentage points, respectively, since the start of the downturn.

Other demographic breakdowns in unemployment show that while all major groups have experienced large increases, racial and ethnic minorities, men, and workers with lower levels of schooling are getting hit particularly hard.

—In September, unemployment was 15.4% among black workers, 12.7% among Hispanic workers, and 9.0% among white workers (increases of 6.5, 6.5, and 4.6 percentage points, respectively, since the start of the recession).

—Unemployment was 11.0% for men, compared to 8.4% for women (increases of 6.0 and 3.6 percentage points since the start of the recession).

—For workers age 25 or older, unemployment reached 10.8% for high school educated workers and 4.9% for those with a college degree (increases of 6.2 and 2.8 percentage points, respectively, since the start of the recession).

An important sector to watch when looking for signs of improvement in the labor market is temporary help services, as employers often test the waters of a recovery by first hiring temp workers.  While employment declines have moderated dramatically in temporary help services—the average loss in the third quarter was 5,000 compared to 73,000 lost per month in the first quarter of the year—this sector is not yet adding jobs.  Similarly, it is important to look at average hours worked, since employers who have cut hours during the recession will likely first increase hours for their existing employees before they begin to hire new workers.  Average weekly hours of production and nonsupervisory workers declined at a 2.7% annualized rate in the fourth quarter of 2008, but remained flat in the third quarter of 2009, demonstrating that hours are not yet being restored.  Both of these indicators suggest that recovery in employment is not coming any time soon.   

Compared to the first quarter, job losses are moderating in most industries.  Construction jobs declined by 64,000 in September, for a recession-to-date total of 1.5 million jobs lost (19.7% of employment in that sector). The September contraction was significantly smaller than the average monthly losses of 124,000 in the first quarter of this year and 80,000 in the second quarter.  Manufacturing jobs declined by 51,000 in September, for a total drop since December 2007 of 2.1 million jobs, 14.9% of that sector’s employment.  September’s decline in manufacturing was also much smaller than the average monthly loss of 202,000 in the first quarter and 140,000 in the second quarter.

Government employment saw particularly large losses in September.  The federal government lost 6,000 jobs in September, while state governments lost 10,000, and local governments lost 37,000.  State and local government employment in education dropped by 29,000, as laid-off teachers and other employees did not return to work in September.  State and local budget problems continue to place a large drain on the economy as state and local governments are forced to make additional cuts.

The retail trade sector—down 38,500—also lost more jobs in September compared to the 8,800 job decline in August.  Retail trade lost 55,000 jobs per month, on average, in the first quarter, and 27,000 jobs per month in the second quarter.  The improvements in the trend were reversed by the sector’s average of 31,000 jobs lost in the third quarter.

Growth in the hourly wages of production workers dropped from 3.9% during the first year of the recession (December 2007-December 2008) to a 1.3% annualized growth rate in the second quarter
of 2009.  However, the third quarter of 2009 saw a modest rebound, to a 2.5% annualized growth rate.  Average weekly earnings grew 2.4% for the first year of the recession, fell to an annualized rate of -0.7% for the second quarter of 2009, and have seen a rebound, to 2.5% in the third quarter of 2009.  However, all of the third quarter increases came in July and August, as there was a decline in nominal weekly wages of $1.54 and hourly earnings grew by just 1 cent in September. 

The September employment report shows that, thanks largely to the ARRA, the rate of decline in the labor market is moderating.  Unemployment, however, remains destined to exceed 10% by the end of the year, and will likely remain elevated for years to come. In fact, without the labor force decline in the last month and over the last year we would already have an unemployment rate exceeding 10.0%.  The level of growth needed to restore the labor market any time soon is enormous, making for an overwhelming economic case that additional policy interventions are necessary to provide relief and generate jobs. —Research assistance from Kathryn Edwards and Andrew Green


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