The labor market began the second half of 2013 with a fizzle. The jobs report released today by the Bureau of Labor Statistics shows the addition of 162,000 jobs in July and a 26,000 downward revision to earlier months’ data, bringing the average monthly growth rate of the last three months to 175,000 jobs. At this rate, it would take six years to fill our gap of 8.3 million jobs and return to a healthy labor market.
The unemployment rate dropped from 7.6 percent to 7.4 percent, but this was largely due to workers dropping out of, or not entering, the labor force because of weak job opportunities. The labor force participation rate dropped to 63.4 percent, near its low of the downturn (which was 63.3 percent in April). The share of the working-age (16+) population with a job did not budge, holding steady at 58.7 percent. The share of the prime-age (25–54) population with a job also did not budge, holding at 75.9 percent. In other words, the drop in the unemployment rate was not happening because we’re putting a larger share of our population back to work.
Six trends in the jobs numbers that are due to weak hiring
Almost every major indicator in today’s report underscores that we have not yet entered a robust jobs recovery. Because hiring remains very weak, we see the following six trends in the jobs numbers:
- Unemployment is elevated across the board—across all categories of education, age, gender, race/ethnicity, and occupation.
- Labor force participation itself is depressed.
- Underemployment is elevated.
- Long-term unemployment is elevated.
- Wage growth is depressed.
- There is disproportionate job growth in low-wage industries.
We will now examine each of these trends in turn.
1. Unemployment is elevated across the board
The table below shows the current unemployment rate and the unemployment rate in 2007, along with the ratio of those two values, for various demographic and occupational categories. There is substantial variation in unemployment rates across groups, but this is always the case (note that it was true in 2007, before the recession began). A key message from this table is that the unemployment rate is between 1.5 and 1.9 times as high now as it was six years ago for all groups. Today’s sustained high unemployment relative to 2007 across all age, education, occupation, gender, and racial and ethnic groups underscores that the jobs crisis stems from a broad-based lack of demand. In particular, unemployment is not high because workers lack adequate education or skills; rather, a lack of demand for goods and services makes it unnecessary for employers to significantly ramp up hiring.
Unemployment rates of various demographic groups, 2007 and today
* This is a 12-month average (August 2012–July 2013). This is necessary because the monthly values for these series are not seasonally adjusted.
Source: Author's analysis of the Current Population Survey public data series
2. Labor force participation itself is depressed
The labor force participation rate fell one-tenth of a percentage point in July to 63.4 percent, near its low of the downturn (63.3 percent in April) and far below the prerecession 66.0 percent level of December 2007. It is likely that the majority 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. The Congressional Budget Office (CBO) estimates the current size of the “potential labor force”—the size the labor force would be if job opportunities were strong—at 159.2 million. The size of our current labor force is just 155.8 million. In other words, according to the CBO about 3.4 million workers are “missing” from our workforce. Job growth is not yet strong enough to start drawing them in. It’s useful to note that if those workers were in the labor force looking for work, the unemployment rate would be 9.4 percent instead of 7.4 percent.
3. Underemployment is elevated
The number of people working part time who want full-time jobs increased by 19,000 in July, to 8.2 million; there has been no improvement in this number in more than a year and a half. In 2007, there were 4.4 million people working part time who wanted full-time jobs.
4. Long-term unemployment is elevated
The share of unemployed workers who have been unemployed for more than six months increased in July from 36.7 percent to 37.0 percent; this is a partial reversal of the drop in June. The long-term unemployed share has improved from its peak of 45.3 percent in the spring of 2011. However, that improvement is likely in part due to the scaling back of 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 long-term unemployed share is still far above normal (in 2007 the share averaged 17.5 percent; today we are at more than double that rate).
5. Wage growth is depressed
Average hourly wages for all private-sector workers declined by two cents in July, though this followed a 10 cent increase in June. Average hourly wages grew 1.9 percent over the last year, a substantial decline from the prerecession rate of wage growth. Weekly wages, a measure that combines both hours and hourly wages, also dropped in July—by $3.09—as the length of the average workweek ticked down from 35.5 to 35.4 hours. Consumer spending is unlikely to rise unless wage growth picks up, but wage growth is unlikely to pick up without robust job growth. The economic link between high unemployment and low wage growth is straightforward; employers do not need to pay sizable wage increases to get and keep the workers they need when job opportunities are so weak that workers do not have other options.
6. Disproportionate job growth in low-wage industries
Job growth in low-wage sectors was again dominant in July; this is to be expected when the labor market is as weak as it has been throughout this sluggish recovery. One reason for this is because, with more than three unemployed workers for every job opening, there are many desperate job seekers who have no other choice but to accept low-wage jobs that they would not have to accept if job opportunities were strong.
The two lowest-paid major industries are retail trade and leisure/hospitality (of which restaurants and bars make up the largest share). Restaurants and bars increased by 38,400 jobs in July, higher than the average growth of the first half of the year, 34,700. Retail trade added 46,800 jobs in July, also higher than the average growth of the first half of the year, 23,400. These two industries alone contributed more than half of the total job growth in July. Employment in the temporary help services industry—another low-wage industry—increased by just 7,700 in July. This is slower growth than in the first half of the year, when the monthly increase averaged 20,400; however, because of month-to-month volatility in the data, it should not yet be interpreted as a slowdown in job growth in that industry, which has been growing strongly.
— With research assistance from William Kimball, Natalie Sabadish, and Hilary Wething