Economic Indicators | Jobs and Unemployment

At this rate of job growth, the unemployment rate will stay disastrously high

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This morning’s release of the Employment Situation report by the Bureau of Labor Statistics showed that 80,000 jobs were added in October.  This level of growth is not too far below the average of the last six months, 90,000which is roughly the job growth needed just to keep up with normal growth in the working-age population. At these rates, the labor market will never start putting the backlog of nearly 14 million unemployed workers back to work. In other words, given the enormous scope of the unemployment problem, this minimal level of job creation will keep us mired in disastrously high unemployment.

The unemployment rate and the employment-to-population ratio

Five years ago, in October 2006, the unemployment rate was 4.4 percent. Two years ago, in October 2009, the unemployment rate reached its highest level of the economic downturn, at 10.1 percent. Since then, it has modestly improved, falling to 9.0 percent. However, over the last two years, the labor force participation rate dropped from 65.1 percent (in October 2009) to 64.2 percent. That decline represents around 2.3 million workers. If those workers had remained in the labor force and been counted as unemployed, the unemployment rate today would be 10.4 percent instead of 9.0 percent. This means that the entire improvement in the unemployment rate since its peak two years ago is due to workers either dropping out of, or never entering, the labor force.

With the labor force not growing at a steady pace, arguably the cleanest measure for assessing labor market trends is the employment-to-population ratio, which is simply the share of the working-age population that has a job. Over the last two years, the employment-to-population ratio declined slightly from 58.5 percent to 58.4 percent.  And lest anyone think that the lack of improvement in the share of the working-age population with a job can be explained by retiring baby-boomers or increased college enrollment of young people, we look at the same measure after stripping out young people and people near retirement age and find the same thing: The employment-to-population ratio of “prime-age” workers—workers age 25–54—dropped from 75.0 percent to 74.8 percent over the last two years, more than five percentage points below the pre-recession level of 80.2 percent in the first quarter of 2007. As the figure shows, the labor market plunged dramatically through the fourth quarter of 2009, and then, for the last two years, has basically held steady at the bottom of that extremely deep hole.

Hours and earnings

The length of the average workweek held steady in October at 34.3 hours. Average hours have thus far made up just two-thirds of what they lost in the first 18 months of the downturn (average hours were 34.6 in December 2007 and 33.7 at the low point in June 2009). This underscores that the lack of hiring right now results from a lack of demand, not businesses’ concerns about regulatory burdens or other issues. If businesses needed workers to meet demand but were reluctant to hire because of some other reason, we would see them strongly ramping up the hours of the workers they have. As it is, there are currently 5.9 million workers who want full-time work but who can only get part-time hours at their job because there is not enough work for them to do.

Hourly wages increased by 5 cents in October. In the last three months, wages have grown at a 1.2 percent annualized rate, and they have grown 1.8 percent over the last year. These rates remain far below the pre-recession growth rate (3.4 percent from December 2006 to December 2007), as persistent high unemployment has put strong downward pressure on wage growth. Growth in average weekly wages has been very similar; wages grew at a 1.2 percent annualized rate over the last three months and 1.8 percent over the last year.

Industry breakdowns

As in past months, budget crises at the state and local level meant state and local jobs were slashed. In October, state government employment lost 20,000 jobs and local government employment dropped by 2,000 jobs. Over the last six months, the private sector has added 119,000 jobs per month on average, while the public sector has shed 29,000 jobs per month on average. In other words, public-sector losses have canceled out roughly a quarter of private-sector gains over the last half-year, and this is not even taking into account the ripple effect of public-sector cutbacks; for each dollar of state and local budget cuts, more than half of the jobs and economic activity lost are likely to be in the private sector.

All of the private-sector gains in October were in service-providing industries—private service-producing industries added 114,000 jobs while goods-producing industries lost 10,000 jobs. Retail trade added 18,000, in line with its average performance in the prior three months, 15,000 per month. Restaurants and bars added 13,000, also in line with the industry’s 15,000 average of the prior three months.  Health care added 12,000 jobs, but that was a substantial drop from its average growth rate of 36,000 in the prior three months. Temporary help services added 15,000, somewhat lower than the industry’s average gain of 19,000 in the prior three months.  The temporary help services industry still has a great deal to make up, given how far jobs in the industry fell during the recession: Employment in temporary help services is still 9.5 percent below where it was when the recession started, while overall the labor market is 4.7 percent below where it was when the recession started.

In October, construction saw substantial losses of 20,000, after growing at an 8,000 average for the prior three months. Manufacturing gained 5,000 jobs in October, with durable goods growing by 11,000 and nondurable goods dropping by 6,000.

Underemployment

The “underemployment rate” (the U-6 measure of labor underutilization) is the BLS’ most comprehensive measure of labor market slack. It includes not just the officially unemployed and the marginally attached (jobless workers who want a job and are available to work but have given up actively seeking work), but also people who want full-time jobs but have had to settle for part-time work. This measure decreased in October from 16.5 percent to 16.2 percent, due largely to a 374,000 decline in the number of involuntary part-time workers to 8.9 million. There is a great deal of month-to-month variability in the estimate of the number of involuntary part-time workers, but it has averaged 8.9 million since March of 2009. In October there were a total of 25.4 million workers who were either unemployed or underemployed (the 8.9 million involuntary part-time workers plus 13.9 million officially unemployed and 2.6 million marginally attached). Racial and ethnic minorities have been particularly hard hit by underemployment.

Long-term unemployment

The share of unemployed workers who have been unemployed for more than six months decreased to 42.4 percent in October, still not far off its record high of 45.6 percent in the Spring of 2010. The number of workers who have been unemployed for more than six months decreased by 366,000 to 5.9 million in October. This number has been hovering around 6 million since the fourth quarter of 2009, which is unsurprising given that there have been well over four unemployed workers per job opening since January 2009.

Demographic breakdowns

Unemployment in October was 9.6 percent for those with only a high school education, and 4.4 percent for those with a college degree or more. While workers with higher levels of education have lower unemployment rates, all education categories have seen their unemployment rates roughly double over the last four years, running counter to the notion that there is high unemployment because employers are unable to fill their demand for skilled workers.

Considering additional breakdowns by age, race/ethnicity, and gender, we find that all major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath.  However, young workers, racial and ethnic minorities, and men have been hit particularly hard.

  • In October, unemployment was 16.7 percent among workers age 16–24, 8.0 percent among workers age 25–54, and 7.0 percent among workers age 55 and older (up 5.0, 3.9, and 3.8 percentage points, respectively, since the start of the recession in December 2007).
  • Among workers younger than age 25 who are not enrolled in school, unemployment over the last year averaged 21.5 percent for those with a high school degree, and 9.6 percent for those with a college degree (reflecting increases of 9.5 and 4.1 percentage points, respectively, since 2007).
  • Unemployment in October was 15.1 percent for African American workers, 11.4 percent for Hispanic workers, and 8.0 percent for white workers (up 6.1, 5.1, and 3.6 percentage points, respectively, since the start of the recession).
  • Unemployment was 9.5 percent for men, compared with 8.5 percent for women (up 4.4 and 3.6 percentage points, respectively, since the start of the recession).

Conclusion

The U.S. is currently 6.5 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 4.5 million jobs to keep the unemployment rate from rising. Putting these numbers together means the current gap in the labor market is roughly 11.0 million jobs. Filling that gap in three years—by fall 2014—while still keeping up with the growth in the working-age population would require adding around 400,000 jobs every single month. Filling the gap in five years—by fall 2016—would mean adding 280,000 jobs each month. By comparison, over the last six months, the economy added just 90,000 jobs per month on average. At this rate, the unemployment rate will never significantly budge.

At the end of this year, federally funded extended unemployment insurance (UI) benefits are set to expire. The Congressional Budget Office projects an unemployment rate of 8.5 percent at the end of next year, which is higher than the worst months of the last two recessions. Extending the federally funded unemployment insurance benefit extensions through 2012 would not only extend a lifeline to the families of millions of long-term unemployed workers, it would also generate spending that would support well over half a million jobs. If this program is discontinued, the economy will lose these jobs. For more details, see EPI Issue Brief #318, Labor market will lose over half a million jobs if UI extensions expire in 2012.

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

See more work by Heidi Shierholz