The October Employment Situation report released by the Bureau of Labor Statistics shows solid employment growth from both the payroll and household survey. On the payroll side, 171,000 jobs were added in October, while revisions to prior months’ data increased the payroll count by an additional 84,000 jobs. In the household survey, unemployment ticked up to 7.9 percent, reversing some of the large drop in the unemployment rate in September. However, the unemployment rate increase in October was not due to a deterioration in employment; the share of the working-age population with a job ticked up by one-tenth of a percentage point in October.
Six years ago, in October 2006, the unemployment rate was 4.4 percent. The unemployment rate began rising in the summer of 2007, though the Great Recession did not officially begin until December 2007. Three years ago, in October 2009, the unemployment rate reached its highest level of the economic downturn, 10.0 percent. The unemployment rate has fallen to 7.9 percent in the last three years, but still has a very long way to go to get back to pre-recession levels.
Labor force participation and employment-to-population ratio up
The labor force participation rate (the share of the working age population that is either employed or actively seeking work) increased two-tenths of a percentage point to 63.8 percent in October, after increasing by one-tenth of a percentage point in September. The labor force numbers are very volatile over short periods, so it is too early to conclude much from these increases. However, if these increases hold in coming months it will be good news: Labor force participation dropped dramatically in the weak labor market of the Great Recession and its aftermath, and a reversal of that trend will signify that improving job opportunities are drawing workers back in.
With the labor force not growing at a steady pace, arguably a cleaner measure than the unemployment rate for assessing labor market trends in recent years is the employment-to-population ratio (EPOP), which is simply the share of the working-age population that has a job. The EPOP is currently 58.8 percent, having increased by one-tenth of a percentage point in October and four-tenths of a percentage point in September. However, there is still a great deal of ground to make up; the EPOP in early 2007 was 63.3 percent. It should be noted that some of the decline since that time can be explained by demographic trends such as retiring baby-boomers and increasing college enrollment of young people. Therefore, it is useful to look at the EPOP after stripping out young people and people near retirement age to get an even cleaner read of trends in job opportunities. As the figure below shows, the employment-to-population ratio of “prime-age” workers—workers age 25–54—dropped from 80.2 percent in early 2007 to under 75 percent in the fourth quarter of 2009, and has since increased to 76 percent.
In other words, the labor market has experienced small but noticeable improvement since its low point three years ago, but still has a long way to go.
Employment-to-population ratio of workers ages 25–54, 2006–2012
Note: Shaded area denotes recession. Data are through November 2, 2012.
Source: Author’s analysis of Bureau of Labor Statistics’ Current Population Survey public data series
Long-term unemployment up
The share of unemployed workers who have been unemployed for more than six months increased to 40.6 percent in October, still not far off the record high of 45.5 percent in the spring of 2011. The number of workers who have been unemployed for more than six months increased by 158,000 to 5.0 million. The large number of long-term unemployed is unsurprising given that there have been three or more unemployed workers for every job opening since September 2008.
Hours flat, wages down slightly
The length of the average workweek held steady at 34.4 hours. Average hourly wages for all private-sector workers dropped by one cent in October, reversing a portion of the seven cent increase in September. The annualized growth rate of the last three months is 1.0 percent, a substantial decline from the pre-recession rate of wage growth, as persistent high unemployment continues to exert strong downward pressure on wages.
With flat hours and a small decline in hourly wages in October, average weekly earnings decreased by 35 cents, also reversing a portion of the $2.41 increase in September. The three-month annualized growth rate of average weekly earnings is 1.0 percent.
After three months of job growth, the public sector lost jobs again in October (6,000 federal government jobs lost and 7,000 state government jobs lost). Since the labor market began adding jobs in February 2010, the public sector has lost 460,000 jobs while the private sector has gained 5 million jobs.
In October, construction increased by 17,000 jobs, good news after an average growth rate of 2,700 over the prior three months. Manufacturing gained 13,000 jobs in October, also good news after an average loss of 3,000 per month over the prior three months.
Retail trade added 36,400 jobs in October, an improvement over average monthly retail job gains in the prior three months, 16,200 per month. Health care added 30,500 jobs, just over its average increase of 25,800 in the prior three months. Temporary help services added 13,600 jobs, which was good news after the average growth rate of 1,300 over the prior three months, since despite relatively strong growth in the recovery, employment in temporary help services is still below its pre-recession levels. Restaurants and bars added 22,900 jobs in October, slightly down from the industry’s 34,800 average gain of the prior three months.
- Unemployment in October was 8.4 percent for those age 25 and older with a high school degree but no additional education, and 3.8 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 12 months averaged 20.6 percent for those with a high school degree but no additional education and 7.8 percent for those with a college degree or more (annual averages are used here since seasonally adjusted data are not available for workers under age 25 by education). These numbers show that young workers have been particularly hard hit by unemployment. The numbers also show that workers with higher levels of education have lower unemployment. However, workers at all levels of education have seen their unemployment rates roughly double since 2007, showing that our persistent high unemployment problem is not a “skills” problem, since demand has dropped for workers at all levels of education.
- Racial and ethnic minorities continue to be hit particularly hard by unemployment. Unemployment in October was 14.3 percent for African American workers, 10.0 percent for Hispanic workers, and 7.0 percent for white workers, (up 5.3, 3.7, and 2.6 percentage points, respectively, since the start of the recession).
- 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 8.0 percent. Female unemployment continued to rise for about another year, peaking at 9.0 percent in November 2010, and has since fallen to 7.7 percent.
The U.S. is currently 3.8 million jobs below where it was when the recession started. But because the working-age population grows as the population expands, in the nearly four years since the recession started, we would have needed to add around 5.2 million jobs to keep the unemployment rate from rising. Putting these numbers together means the current gap in the labor market is 9.0 million jobs. Filling that gap in three years—by fall 2015—while still keeping up with the growth in the working-age population would require adding around 330,000 jobs every single month. In comparison, over the last three months, the economy added just 170,000 jobs per month on average. At this rate, it would take until the middle of 2020 to get back to the pre-recession unemployment rate.
At the end of this year, federally funded extended unemployment insurance benefits are set to expire. It is likely that the unemployment rate will see little improvement in 2013, so extending the federally funded unemployment insurance benefit extensions through 2013 would not only extend a lifeline to the families of millions of long-term unemployed workers, it would also generate spending that would support hundreds of thousands of jobs. If this program is discontinued, the economy will lose these jobs.
— Research assistance was provided by Nick Finio, Natalie Sabadish, and Hilary Wething