Economic Indicators | Jobs and Unemployment

Labor market moving in two directions at the same time

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This month’s Bureau of Labor Statistics report shows the labor market moving in two directions at the same time, with employers reporting disappointing payroll job growth of only 36,000, but households reporting large employment gains (after removing the effect of new population weights).  Some of the lack of payroll jobs growth can be chalked up to unusually cold weather in January and snowstorms in the Midwest and Northeast during the reference week. Given the confounding nature of this report, we will have to wait at least another month to see if the labor market is rebounding strongly.

Aside from today’s muddled picture, one thing is crystal clear:  the U.S. labor market started 2011 with half a million fewer jobs than it had 11 years ago in January 2000. Today’s numbers are a testament to both the enormity of the current labor market crisis as well as the very weak job growth of the 2000-07 business cycle.

Unemployment and the labor force

After accounting for the effect of new official population weights, the labor force held steady in January.  The new population controls, however, show that the labor force is around half a million workers smaller than previously thought.  In January, the labor force participation rate was 64.2%, the lowest point of the recession.  Astonishingly, the labor force is three-quarters of a million workers smaller than it was before the recession started.  It would have been expected to increase by roughly 4.1 million workers from December 2007 to January 2010 given working-age population growth over this period.  Thus, as the Figure shows, the pool of “missing workers,” that is, workers who dropped out of (or didn’t enter) the labor force during the downturn, numbers 4.9 million.  If just half of these workers were currently in the labor force and officially counted among the unemployed, the unemployment rate would be 10.5% instead of 9.0%.  None of these workers is reflected in the official unemployment count, but their eventual entry or re-entry into the labor force will contribute to keeping the unemployment rate high going forward.

Demographic breakdowns of labor force participation

Except for older workers, essentially all major demographic groups have experienced substantial decreases in labor force participation over this downturn.  Men, racial and ethnic minorities, workers with lower levels of schooling, and young workers have experienced the largest declines.

  • Since December 2007, the labor force participation rate (LFPR) has decreased by 2.7 percentage points among men (dropping to 70.4%) and by 1.1 point among women (to 58.3%).
  • Since December 2007, the LFPR has decreased by 1.7 points among black workers (to 61.7%), by 1.4 points among Hispanic workers (to 67.1%), and by 1.9 points among white workers (to 64.5%).
  • For workers age 25 or older, high-school-educated workers saw a decrease in LFPR of 2.4 points to (60.3%) since December 2007,, and those with a college degree saw a drop of 1.6 points (to 76.4%).
  • Since December 2007, the LFPR has decreased by 4.0 points among workers age 16-24 (to 55.2%), by 1.4 points among workers age 25-54 (to 81.7%), and it has increased by 1.0 points among workers age 55 and over (to 39.9%).

Long-term unemployment

Starting in January 2011, respondents are now able to report unemployment durations of up to five years (prior to this, the Current Population Survey only recorded unemployment durations of up to two years).  This change does not affect the share of the unemployed who have been jobless for more than six months or the median unemployment duration, but it does affect the mean unemployment duration, as people who have been unemployed for longer than two years report higher numbers.  The mean unemployment duration in January was 36.9 weeks (up from 34.2 weeks in December), and the median was 21.8 (down slightly from 22.4 weeks in December).   The share of unemployed workers who have been without work for over six months decreased in January, from 44.3% to 43.8%, but still remains one of the highest on record. In January, a total of 6.2 million workers have been unemployed for longer than six months.

Hours and earnings

The length of the average workweek declined in January to 34.2 hours, though that decline may have been weather-related to some degree. At this point, the workweek has seen no net growth since May (its low point of the downturn was 33.7 hours in June 2009, but it is still below its 2007 average of 34.6).  Average hourly wages grew little in January (by eight cents), and have grown at a 1.6% annualized rate over the last three months.  Weekly wages increased by only 46 cents, from $781.35 to $781.81, and have grown at a 0.4% annualized rate over the last three months.

Industry sectors

The public sector again reflected state and local budget problems, with state government employment losing 2,000 jobs and local government employment dropping by 10,000.  Since their employment peak in August 2008, state and local governments have shed 426,000 jobs (69,000 state jobs, 357,000 local).

The private sector added 50,000 jobs in January.  Of these gains, 32,000 were in private service-providing industries, and 18,000 were in goods-producing industries.  Manufacturing gained 49,000 jobs, positive news after adding just 8,000 per month on average in the fourth quarter of 2010.  Construction declined significantly in January, dropping 32,000 jobs, after declining an average of 9,000 per month in the fourth quarter of 2010.  Construction employment was likely affected by an unusually cold January and snowstorms during the reference week in the Midwest and Northeast.

Leisure and hospitality had a disappointing January, shedding 3,000 jobs.  This sector may also have been affected by the snowstorms, but the decline was actually smaller than the average decline of 13,000 in the fourth quarter of 2010.  In what also may be at least partially a consequence of the nation’s inclement weather, transportation and warehousing was down 38,000 after increasing an average of 24,800 per month in the fourth quarter of 2010. Retail trade increased by 28,000 in January, as consumer spending is reviving somewhat. This growth, however, came on the heels of a disappointing end to 2010, where retail trade added just 5,000 per month, on average, in the fourth quarter of 2010.  Health care added 11,000 jobs, a decline over the 26,000 average over the prior three months.  Temporary help services declined by 11,000 after adding an average of 31,000 per month in the fourth quarter of 2010.  The decline in temporary help services does not bode well for future hiring.

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 January, to 16.1%, due in large part to a substantial decline (524,000) in the number of involuntary part-time workers.  The number of marginally attached workers, on the other hand, increased by 151,000.  In January, there were 25.1 mi
llion workers who were either un- or underemployed.  

Data revisions

Revisions to the establishment data, including annual benchmark adjustments, showed that the country had 483,000 fewer jobs last December than previously estimated.  The data now show that the country lost 8.7 million jobs from December 2007, the start of the Great Recession, to February 2010, the revised employment trough.   Today’s report caps off 11 months of private-sector job growth, with the labor market adding 1.0 million jobs over that period.  However, the labor market remains 7.7 million payroll jobs below where it was at the start of the recession three years and one month ago.  Unfortunately, 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 3.7 million jobs over this period.  In essence, the labor market is now 11.4 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007).  So, despite the job growth of the last year, we remain near the bottom of a very deep hole.  To achieve the pre-recession unemployment rate in five years, the labor market would have to add 285,000 jobs every month for the next 60 months in a row.

—Kathryn Edwards and Andrew Green provided research assistance.


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