Economic Indicators | Jobs and Unemployment

The public sector has cut 680,000 jobs over the last four years

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The employment report from the Bureau of Labor Statistics released today showed 96,000 jobs were added in August, a drop from the average growth rate of the first seven months of the year, 145,000. Given month-to-month variability in the data, it is likely that the underlying growth rate is closer to the latter.

The unemployment rate declined to 8.1 percent in August, but that was due to workers dropping out of the labor force, not to an increase in the share of potential workers finding jobs. The employment-to-population ratio—a broad measure that is simply the share of the working-age population with a job—declined by a tenth of a percentage point, to 58.3 percent. (However, my preferred measure—the employment-to-population ratio of 25–54 year-olds—increased by a tenth of a percentage point, to 75.6 percent. An explanation of why it is my preferred measure can be found here.)

Following the job loss of the Great Recession, the labor market has now been adding jobs for two-and-a-half years. However, while the current pace of growth is roughly what’s needed for the unemployment rate to hold its ground as the population grows, we need much faster job growth to meaningfully bring the unemployment rate down in a reasonable timeframe. For example, we’d need to add around 350,000 jobs a month to get back to the pre-recession unemployment rate in three years.

For a comprehensive examination of not just jobs, unemployment, and wages, but also income, wealth, poverty, and economic mobility, see the forthcoming State of Working America, 12th Edition, which will be released on Tuesday, Sept. 11.

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

The public sector has now been losing jobs for four years

While overall the labor market has added jobs for the last two-and-a-half years, it’s actually just the private sector that’s adding jobs; the public sector is losing them. In August, the public sector lost 7,000 jobs. Since the peak of public-sector employment four years ago in August 2008, the public sector has shed 680,000 jobs. Through ripple effects, the loss of public-sector jobs also causes job loss in the private sector, amplifying the drain on the recovery.

Long-term unemployment remains near record highs

The share of unemployed workers who have been unemployed for more than six months decreased to 40.0 percent in August, but is still not far off its record high of 45.5 percent in March 2011, as the figure shows. Further, the decline is likely in part due to workers exhausting unemployment insurance benefits, as the requirement to look for work in order to maintain benefits kept some long-term unemployed actively seeking work and therefore counted as unemployed. The fact that jobseekers continue to get stuck in unemployment for such long periods is unsurprising given that there have been three or more unemployed workers per job opening for nearly four years.

Weak hiring means long-term unemployment remains high, while wage growth and labor force participation are low

Because hiring remains very weak, at least three things are happening: In addition to the fact that unemployed workers continue to face long spells of unemployment, labor force participation remains depressed, and wage growth is very poor because employers know workers lack good outside options.

  • The labor force participation rate fell in August to 63.5 percent, its low of the downturn and far below the 66.0 percent level of December 2007. It is likely that around two-thirds of the workers who make up the drop in the labor force participation rate since the start of the recession would be in the labor force if job prospects were strong. This translates into about 4 million “missing” workers. Job growth is not yet strong enough to start drawing them in.
  • Average hourly wages for all private-sector workers decreased by 0.5 percent (annualized) in August. Average hourly wages grew 1.7 percent over the last year, a substantial decline from the pre-recession rate of wage growth. Average weekly hours were unchanged in August at 34.4, so average weekly wages tracked average hourly wages, with an annualized decrease of 0.5 percent in August.

Industry breakdowns

Manufacturing lost 15,000 jobs in August. However, the drop was likely due to seasonal adjustment issues related to auto plant retooling, so the average growth of the last three months—+5,000—probably provides a more accurate picture of the underlying trend. Construction was basically flat (+1,000 jobs) after losing 5,000 per month for the first seven months of the year, and retail added 6,100 jobs, after gaining 2,000 per month on average for the first seven months of the year.

Health care was relatively weak in August, adding 16,700 jobs after adding 25,800 on average for the first seven months of the year. Temporary help services saw a decline of 4,900, after adding 19,000 per month on average for the first seven months of the year.

Restaurants and bars continue to show quite robust job growth, adding 28,300 jobs in August, higher than the industry’s 20,000 average of the first seven months of the year. As Dean Baker points out in his analysis of today’s report, the fact that jobs are growing faster right now in low-paying sectors such as restaurants and bars is not unexpected, since in periods of high unemployment, low-paying jobs tend to account for a much higher share of job growth than during periods of low unemployment.

Demographic breakdowns

Unemployment in August was 8.8 percent for those age 25 and older with a high school degree but no additional education, and 4.1 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 20.9 percent for those with a high school degree and 8.1 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). These numbers show that young workers have been particularly hard-hit by unemployment. They 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 demand for workers has dropped at all levels of education.

Racial and ethnic minorities continue to be hit particularly hard by unemployment. Unemployment in August was 14.1 percent for African American workers, 10.2 percent for Hispanic workers, and 7.2 percent for white workers. 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 8.3 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 7.8 percent.

Conclusion

The labor market still has a deficit of 9.8 million jobs. The lack of demand for workers means unemployment durations remain extremely high. If emergency unemployment compensation (EUC) benefits are allowed to lapse (as is currently scheduled to happen at the end of this year), only around a quarter of all unemployed workers would be receiving UI benefits, the lowest share on record. Given the weakness of the labor market, this would be premature and destructive, and would likely cost about 430,000 jobs. Continuing emergency unemployment insurance benefits should be part of the continuing appropriations legislation that congressional leaders are currently negotiating.

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

 

See more work by Heidi Shierholz