Economic Indicators | Jobs and Unemployment

Labor force smaller than before recession started

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The December jobs report shows continued improvements in the labor market, but they were modest. Payroll employment growth was just 103,000, average hours held steady at 34.3, and average hourly wages increased by only three cents. Though the unemployment rate dropped to 9.4%, around half of the improvement was due to 260,000 people dropping out of the labor force, leaving the labor force participation rate at 64.3%, a stunning new low for the recession. Incredibly, the U.S. labor force is now smaller than it was before the recession started, though it should have grown by over 4 million workers to keep up with working-age population growth over this period.

The good news in this report is that December caps an entire year of job gains in the private sector. The bad news is that – three full years after the recession officially began – the U.S. is  still near the bottom of a deep crater.  Where does the Great Recession, three years out, stack up historically?  The accompanying figure, which compares the percent employment change by month from the start of each post-WWII recession, shows that the Great Recession is far outside the experience of any this country has seen in 70 years.  Three years out, the labor market is still down a larger percentage of jobs (5.2%) than at the most severe point of any other postwar recession. 

Unemployment and the labor force

The labor force fell by 260,000 in December, and the labor force participation rate fell to at 64.3%, the lowest point of the recession.  Incredibly, the labor force is now smaller than it was before the recession started, so the pool of “missing workers,” i.e., workers who dropped out of (or didn’t enter) the labor force during the downturn, remains large.  We can estimate its size in the following way.  The labor force should have increased by around 4.2 million workers from December 2007 to December 2010 given working-age population growth over this period, but instead it has fallen by 246,000. This means that the pool of missing workers now numbers around 4.4 million.  If just half of these workers were currently in the labor force and were unemployed, the unemployment rate would be 10.7% instead of 9.4%.  None of these workers is reflected in the official unemployment count, but their entry or re-entry into the labor force will contribute to keeping the unemployment rate high.

Hours and earnings

The length of the average workweek held steady in December at 34.3 hours. The workweek has seen little growth since May, when the restoration of hours stalled out at 34.2 (its low point of the downturn was 33.7 in October 2009).  Average hourly wages grew little in December (by three cents), and have grown at a 1.8% annualized rate over the last three months.  Weekly wages increased by $1.02, from $780.33 to $781.35, and have grown at a 3.0% annualized rate over the last three months.  Paychecks will need to see faster growth than this if consumers are to be a driving factor of the recovery. 

Industry sectors

The public sector again shows the effect of state and local budget problems, with state government employment remaining unchanged and local government employment dropping by 20,000.  Since their employment peak in August 2008, state and local governments have shed 397,000 jobs (19,000 state jobs, 378,000 local).

The private sector added 113,000 jobs.  All of these gains were in service-providing industries – private service-producing industries added 115,000 jobs while goods-producing industries lost 2,000 jobs.

Retail trade always employs many seasonal workers in December.  However, because a November/December retail hiring surge happens every year, these workers are not reflected in the seasonally adjusted data, which attempt to capture underlying trends and exclude seasonal patterns.  On a nonseasonally adjusted basis, retail trade added 182,000 workers. On a seasonally adjusted basis, retail trade increased by 12,000 in December.  This was better than its decline of 19,400 in November, but worse than its increase of 38,200 in October.  The pattern in retail over the last three months suggests the strong October increase was largely due to earlier-than-usual holiday hiring.

The bright spots in the payroll data were familiar ones – health care, restaurants and bars, and temporary help services. Health care added 35,700 jobs, an increase over what it added on average in the prior three months, 24,600.  Restaurants and bars again had a big month, adding 24,500, slightly lower than what they added on average in the prior three months, 26,500.  Temporary help services added 15,900 after adding around 29,000 in each of the prior three months.  The slowdown in temp work does not bode well for future hiring. 

Following the expiration of the homebuyer tax credit, construction again declined in December, by 16,000.  Manufacturing gained a modest 10,000 jobs, positive news after four straight months of declines.  Manufacturing now has roughly as many workers as it had in May 2010.

Long-term unemployment

Because of the record-breaking length and severity of this recession (see the above figure), this downturn has broken all postwar records related to duration of unemployment.  The share of unemployed workers who have been unemployed for over six months increased substantially in December, from 42.2% to 44.3%, though the share is still off its record high of 45.6% in May.  The long-term-unemployed share remains one of the highest on record, and there are still 6.4 million workers who have been unemployed for longer than six months. 

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 slightly in December, to 16.7%, though the number of marginally attached workers increased (by 86,000), and involuntary part-timers declined only slightly (by 29,000).  In December, there were a total of 26.1 million workers who were either unemployed or underemployed.  

Demographic breakdowns

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 been hit particularly hard. 

  • In December, unemployment was 18.1% among workers age 16-24, 8.5% among workers age 25-54, and 6.9% among workers age 55+ (increases of 6.4, 4.4, and 3.7 percentage points, respectively, since the start of the recession in December 2007).
  • Unemployment was 15.8% among black workers, 13.0% among Hispanic workers, and 8.5% among white workers (increases of 6.8, 6.7, and 4.1 percentage points, respectively, since the start of the recession).
  • Unemployment was 10.1% for men, compared to 8.7% for women (increases of 5.0 and 3.8 percentage points since the start of the recession).
  • For workers age 25 or older, unemployment reached 9.8% for high-school-educated workers and 4.8% for those with a college degree (increases of 5.1 and 2.7 percentage points, respectively, since the start of the recession). 

Conclusion g>

While the labor market is now adding jobs, it remains 7.2 million payroll jobs below where it was at the start of the recession three years ago.  And even this number 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 require the addition of another 3.7 million jobs in those three years.  This means the labor market is now nearly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007).  So, despite the job growth of 2010, we remain near the bottom of a very large hole.  To achieve the pre-recession unemployment rate in five years, the labor market would have to add nearly 300,000 jobs every month for the  entire period.  December’s modest improvement offered 103,000 pieces of good news, but little collective cheer.

Kathryn Edwards and Andrew Green provided research assistance.


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