Economic Indicators | Jobs and Unemployment

Labor market falters in November

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The labor market sputtered in November, according to this morning’s report by the Bureau of Labor Statistics, as employment, hours worked, and wages all flatlined, and unemployment rose to 9.8%.  Payroll employment grew just 39,000, while private-sector employment grew by 50,000, its worst showing in 10 months. The unemployment rate for people with a college degree, at 5.1%, is the highest it has been in 40 years.  The hoped-for progress in the labor market is not materializing.   

The surprisingly bleak report also hits another grim benchmark: at 19 months, it’s now tied with the longest stretch on record (during the early 1980s recession) in which unemployment did not dip below 9.0%.  At the tail end of those 19 months in the early 1980s recession, however, the unemployment rate was already falling fast.  Today’s situation stands in stark contrast, with the unemployment rate expected to remain above 9% through all of 2011, if not beyond. 

Hours and Earnings

The length of the average workweek held steady in November at 34.3 hours. The workweek has seen very 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 were basically flat in November, and have grown at a 1.8% annualized rate over the last three months.  Weekly wages, increased by 35 cents, from $779.98 to $780.33, and have also grown at a 1.8% annualized rate over the last three months, the slowest rate since early this year.   Paychecks will need to see much faster growth than this to sustain consumer spending at its recent pace, especially since transfer payments from the Recovery Act, which will phase out soon unless Congress acts, are what have helped prop up consumer spending in the last five quarters.  Figure E of this Congressional Testimony by Josh Bivens shows dramatically how transfer payments have been holding up consumer spending during this downturn.  One key transfer, extended Unemployment Insurance benefits, expired earlier this week.  If these benefits are not reinstated, it will be a significant drag on growth.  

Unemployment and the labor force

The labor force grew by 103,000 in November, roughly what is needed to keep pace with normal population growth, so the labor force participation rate held steady at 64.5%, remaining at its lowest point of the recession.  The increase in the unemployment rate was not due to people reentering the labor force; it was due to people losing jobs, as the number of unemployed people who report their reason for unemployment as “losing a job or completing a temporary job” increased by 390,000.  The labor force participation rate remains far below its prerecession level of 66.0% in December 2007, so the pool of “missing workers,” that is, 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 4.1 million workers from December 2007 to November 2010, given working-age population growth over this period, but instead it has grown by only 138,000. This means that the pool of missing workers now numbers around 4 million.  If half of these workers were currently in the labor force and were unemployed, the unemployment rate would be 11.0% instead of 9.8%.  None of these workers are currently reflected in the official unemployment count, but as they enter or re-enter the labor force in search of work, this will contribute to keeping the unemployment rate high. 

Industry sectors

All of the gains in private-sector jobs were in service-providing industries—private service-producing industries added 65,000 jobs, while good-producing industries lost 15,000 jobs.

Retail trade always has many seasonal workers on its payrolls in November.  However, because the November/December retail hiring surge happens every year, these workers are not reflected in the generally reported seasonally adjusted data, which attempt to capture underlying trends excluding seasonal patterns.  On a seasonally adjusted basis, retail trade declined by 28,000 in November, very bad news after an average increase of 5,000 for the last three months.  On a non-seasonally adjusted basis, however, retail trade added 301,000 workers. 

The bright spots in the payroll data were the familiar ones—health care and temporary help services.  Health care added 19,000 jobs, below the 26,000 monthly average that were added in the prior three months.  The biggest gainer was again temporary help services, which added 39,500.  It added around 28,000 in each of the prior three months. Restaurants and bars again had a relatively big month, adding 11,700, though that was a smaller gain than the prior three months, where they added an average of 29,000.  Transportation and warehousing gained 11,600 in November, all in couriers and messengers. 

Following the expiration of the homebuyer tax credit, the construction sector declined a modest 5,000 jobs in November.  Manufacturing lost 13,000 jobs in November, its fourth straight month of declines after adding jobs for the first seven months of the year. 

In the public sector, we again saw the effect of state and local budgets problems, with state government employment remaining flat (adding 1,000 jobs) and local government employment dropping by 14,000 jobs.  Since their peak in August 2008, state and local governments have shed 380,000 jobs (20,000 state, 360,000 local).

Long-term unemployment

The share of unemployed workers who have been jobless for over six months increased slightly in November, from 41.8% to 41.9%, though it is down from its record high of 46% in May.  The long-term unemployed share remains one of the highest on record, and there are still 6.3 million workers who have been unemployed for longer than six months.  These dramatic figures are unsurprising given that there are five unemployed workers per available job

Underemployment

The “underemployment rate”(or 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 stayed flat in November, at 17.0%.  The number of involuntary part-time workers decreased by 182,000, further offsetting large increases earlier in the fall.  In November, there were a total of 26.6 million workers who were either unemployed or underemployed.  

Demographic breakdowns

All major groups have experienced substantial increases over this downturn, though men, racial and ethnic minorities, young workers, and workers with lower levels of schooling have gotten hit particularly hard. 

  • In November, unemployment was 18.3% among workers age 16-24, 8.8% among workers age 25-54, and 7.3% among workers age 55+ (increases of 6.5, 4.7, and 4.1 percentage points, respectively, since the start of the recession in December 2007).
  • Unemployment was 16.0% among black workers, 13.2% among Hispanic workers, and 8.9%
    among white workers (increases of 7.0, 6.9, and 4.5 percentage points, respectively, since the start of the recession).
  • Unemployment was 10.6% for men, compared to 8.9% for women (increases of 5.5 and 4.0 percentage points since the start of the recession).
  • For workers age 25 or older, unemployment reached 10.0% for high school educated workers and 5.1% for those with a college degree (increases of 5.3 and 3.0 percentage points, respectively, since the start of the recession). 

Conclusion

The labor market remains 7.4 million payroll jobs below where it was at the start of the recession in December 2007, and this number understates the size of the gap in the labor market by failing to take into account the fact that, simply to keep up with the growth in the working-age population, the labor market should have added around 3.6 million jobs in the nearly three years since December 2007.  This means the labor market is now roughly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007).  To achieve the pre-recession unemployment rate in five years, the labor market would have to add nearly 300,000 jobs every month for 60 months in a row.  An increase of a mere 39,000, like we saw last month, is just not enough for the 15.1 million unemployed workers of this country.

Earlier this week, the federally funded extended unemployment insurance benefits expired. If they aren’t reinstated, 2 million workers will prematurely lose benefits this month.  Importantly, these benefits serve two purposes. First, they provide a lifeline to the unemployed and their families during the deepest and longest downturn since the 1930s.  Second, these benefits also boost spending in the economy and therefore generate jobs.  The continuation of unemployment insurance extensions through 2011 will create or save around 900,000 full-time-equivalent jobs.  With a jobs deficit of 11 million jobs and an unemployment rate of 9.8%, Congress must do the right thing for these workers who lost jobs through no fault of their own and for the health of the overall economy.

-Kathryn Edwards and Andrew Green provided research assistance


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