Economic Indicators | Jobs and Unemployment

The Unemployment Rate Is Less Relevant Than Ever

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The jobs report released this morning by the Bureau of Labor Statistics showed the labor market gained just 169,000 jobs in August, while downward revisions of 74,000 to earlier months’ data brought the average monthly growth rate of the last three months to just 148,000 jobs. At this rate, it would take until well into 2021 to fill our gap of 8.3 million jobs and return to a healthy labor market.

Unemployment rate is hugely misleading

Though the unemployment rate ticked down in August, it declined for all the wrong reasons. The labor force participation rate dropped to its low of the downturn, 63.2 percent. Remember, jobless workers are not counted as being part of the labor force unless they are actively looking for work. According to Congressional Budget Office estimates, if the labor market were healthy, the labor force would number about 159.3 million. But the actual labor force numbers just 155.5 million. That means there are about 3.8 million “missing workers”—jobless people who would be in the labor force if job opportunities were strong. If our 3.8 million “missing workers” were in the labor force looking for work, the unemployment rate would be 9.5 percent instead of 7.3 percent.

Public sector adds jobs, but still down nearly 1.5 million

After hitting its low of the downturn in July, the public sector added 17,000 jobs in August. This is an important step in the right direction—job losses in the public sector have been an enormous drain on the recovery. However, it’s useful to keep in mind just how big a public-sector jobs hole we are in. Since the recovery began in June 2009, the public sector has lost roughly three-quarters of a million (754,000) jobs. However, public-sector employment should naturally grow as the population grows. To keep up with population growth over this period, public-sector employment should have increased by around 700,000. That means the total gap in public-sector employment today is 1.45 million jobs.1

Figure Figure (continued)

Public-sector jobs gap

Public-sector jobs gap

Note: The spikes in public-sector employment in 2000 and 2010 are temporary workers hired to conduct the decennial Census.

Source: Public-sector employment is from the Bureau of Labor Statistics Current Employment Statistics public data series. Population data are from FRED (Federal Reserve Economic Data), “Total Population: All Ages including Armed Forces Overseas.”

Additional trends

Most other indicators in today’s report underscore that even though we have officially been in an economic recovery for more than four years, we have not yet seen a strong enough increase in economic activity to generate a robust jobs recovery. These indicators include:

  1. Long-term unemployment rose in August and remains extremely high.
  2. Unemployment is elevated across the board—across all categories of education, age, gender, race/ethnicity, and occupation.
  3. Hours increased, but that was just a restoration of the July drop.
  4. Because the labor market is weak, there is disproportionate job growth in low-wage industries.

We now examine each of these in turn.

1. Long-term unemployment rose in August and remains extremely high

The share of unemployed workers who have been unemployed for more than six months increased in August from 37.0 percent to 37.9 percent, the second increase in as many months. The long-term unemployed share has, however, improved from its peak of 45.3 percent in the spring of 2011. Given the lack of significant improvement in job opportunities over this period, the improvement in long-term unemployment over the last two-plus years 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).

2. 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 currently substantial variation in unemployment rates across groups, as is always the case (note, for example, 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 1.8 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.

Table Table (continued)

Unemployment rates of various demographic groups, 2007 and today

2007 August 2013 Ratio
All 4.6 7.3 1.6
Male 4.7 7.7 1.6
Female 4.5 6.8 1.5
White 4.1 6.4 1.6
Black 8.3 13.0 1.6
Hispanic 5.6 9.3 1.7
Age 16–24 10.5 15.6 1.5
Age 25–54 3.7 6.3 1.7
Age 55+ 3.1 5.1 1.6
Workers age 25 and older
Less than high school 7.1 11.3 1.6
High school 4.4 7.6 1.7
Some college 3.6 6.1 1.7
Bachelor’s and advanced degree 2.0 3.5 1.8
Workers under age 25, not enrolled in further schooling
High school degree 12.0 19.5* 1.6
Bachelor’s and advanced degree 5.4 8.2* 1.5
Occupation
Management, professional, and related occupations 2.1 3.8* 1.8
Service occupations 5.9 8.9* 1.5
Sales and office occupations 4.3 7.3* 1.7
Construction and extraction occupations 7.6 13.3* 1.8
Installation, maintenance, and repair occupations 3.4 5.8* 1.7
Production, transportation, and material moving occupations 5.8 9.2* 1.6

* This is a 12-month average (September 2012–August 2013), since this series is not seasonally adjusted.

Source: Author’s analysis of the Current Population Survey public data series

3. Hours increased, but that was just a restoration of the July drop

Average hours increased by one-tenth of an hour to 34.5, but that was simply a reversal of a drop in July. Average hourly wages for all private-sector workers increased by five cents in August; over the last year, average hourly wages grew 2.2 percent, a substantial decline from the prerecession rate of wage growth. Weekly wages, a measure that combines both hours and hourly wages, increased by $4.13 in August. This brought the 12-month growth rate in average weekly wages to just 2.5 percent. 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.

4. Disproportionate job growth in low-wage industries

Job growth in low-wage sectors was again dominant in August; 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 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). Retail trade added 44,000 jobs in August, right in line with the average growth of the prior three months, 42,200. Restaurants and bars increased by 21,200 jobs in August, somewhat lower than the average growth rate of the prior three months, 30,600. Employment in the temporary help services industry—another low-wage industry—increased by 13,100 in August, slightly lower than the average growth rate of the prior three months, 18,000. Health care saw an increase of 32,700 in August, higher than the average growth rate of 13,600 over the prior three months.

Some good news was in manufacturing, a relatively high-paid sector, which added 14,000 jobs after five straight months of declines. The increase in manufacturing was driven (no pun intended) by an 18,800 increase in motor vehicles and parts. Construction—another relatively high-paid sector—was unchanged, following very small increases (averaging 2,000 per month) over the prior three months.

— With research assistance from Alyssa Davis, William Kimball, and Hilary Wething

Endnote

1. Notably, 1.45 million additional public-sector jobs would result in a ratio of public employment to the overall population of 7.35 percent, which is slightly less than the average ratio of public employment to the overall population over the 2000–2007 business cycle, 7.39 percent.


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