Economic Indicators | Jobs and Unemployment

Underlying labor market trend still murky after May jobs report

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The May 2012 employment report from the Bureau of Labor Statistics showed 69,000 jobs were added last month. After a strange winter and early spring—where unseasonably warm winter weather led to unusually strong job growth in January and February that was “paid back” with weaker job growth in March and April—even the May report may not yet provide a clear picture of the underlying trend. The May jobs figures are likely still being weighed down by seasonal issues, as evidenced by a drop in construction and in leisure and hospitality; thus, these numbers should not yet be read as a sign of a slowdown. Even so, payroll employment growth is nowhere near strong enough to get us to full employment anytime soon.

Labor force participation rate up in May but still near low of downturn

Though the unemployment rate rose from 8.1 percent to 8.2 percent in May, the rise was due to the fact that 642,000 people entered the labor force, boosting the labor force participation rate from its low of the downturn of 63.6 percent in April to 63.8 percent in May. This increase in the labor force participation rate should be interpreted with caution—there is significant month-to-month variability in the labor force participation figures, and it is likely that May’s increase is simply a correction of April’s drop. Regardless, the labor force participation rate is still far below the 66.0 percent level of December 2007. This recent EPI analysis shows that roughly two-thirds of the decline in the labor force participation rate since the start of the recession is due to weak job prospects in the Great Recession and its aftermath (these changes are generally labeled cyclical), while the remaining one-third is a result of long-term trends such as baby boomers beginning to retire (changes that are generally labeled structural). To get a rough sense of the potential impact on the unemployment rate of the cyclical decline in the labor force participation rate, note that two-thirds of the way between May’s labor force participation rate of 63.8 percent and the rate in December 2007 (66.0 percent) is 65.3 percent. All else equal, if the labor force participation rate were currently 65.3 percent, there would be 3.6 million more people in the labor force. If these 3.6 million “missing workers” were in the labor force and were unemployed, the unemployment rate would now be 10.3 percent instead of 8.2 percent.

MORE: Sort through updated graphs using data from today’s report

Average hours and weekly wages drop

The length of the average workweek dropped one-tenth of an hour in May to 34.4 hours, another point of weakness in the May report. However, it remains close to its pre-recession level of 34.6 hours.

The very high unemployment of the last four years has exerted strong downward pressure on wage growth, since the existence of so many unemployed workers relative to job openings, combined with the lack of outside job opportunities for workers with jobs, means employers don’t have to pay substantial wage increases to get and keep the workers they need. Average hourly wages for all private-sector workers increased by 2 cents in May, and at a 1.4 percent annualized growth rate over the last three months and a 1.7 percent growth rate over the last year. As this plot shows, this is a substantial decline from the pre-recession rate of wage growth. The weak hourly wage growth combined with the drop in average hours meant that weekly wages dropped slightly (by $1.66) in May.

Long-term unemployment

The share of unemployed workers who have been unemployed for more than six months increased slightly in May to 42.8 percent, and remains very close to its record high of 45.5 percent in March 2011. By comparison, in 2007 the share averaged 17.5 percent. Because hiring is very weak, jobless workers continue to be unable to find work for long periods.

Public-sector losses continue to hamper the recovery

The public sector lost 13,000 jobs in May. Since the recovery officially began three years ago in June 2009, the public sector has shed over 600,000 jobs (more than 500,000 of which were local government employees, including over a quarter million in local government education, which is essentially K–12 public education).

Construction lost 28,000 jobs in May, but those losses were likely in large part due to the negative weather payback. Similarly, leisure and hospitality lost 9,000, also likely in large part due to the negative weather payback. Future months will provide a clearer indication of the underlying trends in these industries. The same can be said for retail trade and temporary help services, which have been quite volatile over the last few months. Retail added just 2,300 jobs in May after adding 27,000 in April, while temporary help services added 9,200 jobs in May after adding 12,600 in April.

Transportation and warehousing added 35,600 jobs, but this was probably largely positive payback from an unusual drop in April. Over the last six months, transportation and warehousing has added 10,200 jobs per month on average. Manufacturing added 12,000 jobs in May, all in durable goods. The growth in manufacturing was a decline from its average gain of 27,000 jobs over the prior three months. Health care added 32,800 jobs, in line with its average monthly growth of 30,600 jobs in the prior three months.

Demographic breakdowns

Unemployment in May was 8.1 percent for those age 25 and older with a high school degree but no additional education, and 3.9 percent for those age 25 and older with a college degree or more. Among workers younger than age 25 who are not enrolled in school, unemployment over the last year averaged 21.0 percent for those with a high school degree, and 8.5 percent for those with a college degree (annual averages are used here since seasonally adjusted data are not available for workers under age 25 by education). While these numbers show that workers with higher levels of education have lower unemployment, workers at all levels of education have seen their unemployment rates roughly double since 2007, running counter to the notion that unemployment is high because employers are unable to fill their demand for workers with higher education credentials.

All major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath. However, racial and ethnic minorities have been and continue to be hit particularly hard. Unemployment in May was 13.6 percent for African American workers, 11.0 percent for Hispanic workers, and 7.4 percent for white workers (up 4.6, 4.7, and 3.0 percentage points, respectively, since the start of the recession). Racial and ethnic minorities have also been disproportionately hard-hit by underemployment.

Men saw a much larger increase in unemployment than women did during the recession, but have seen stronger improvements in the recovery. The unemployment rate reached its pre-recession low in late 2006 and early 2007, at 4.4 percent for men and 4.3 percent for women. Male unemployment peaked at 11.2 percent in October 2009, and has since fallen to 8.4 percent. Female unemployment continued to rise for about another year, when it peaked at 9.0 percent in November 2010, and has since fallen to 7.9 percent.

Conclusion

Despite ongoing improvements, the labor market still has a deficit of close to 10 million jobs, and the lack of demand for workers means unemployment remains high and wage growth for people with jobs remains low. Further, as discussed above, 3.6 million workers have dropped out of (or never entered) the labor market because of weak job opportunities in the Great Recession and its aftermath. While expansionary policies to generate demand are urgently needed and will certainly help spur job growth, they may also generate upward pressure on the unemployment rate as these missing workers begin to enter or reenter the labor market. That kind of upward pressure on the unemployment rate would be a positive sign.

— Research assistance provided by Nicholas Finio, Natalie Sabadish, and Hilary Wething

See more work by Heidi Shierholz