Economic Indicators | Jobs and Unemployment

Unemployment rises, recovery remains on pause

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As a reminder of what a healthy unemployment rate looks like: four years ago (May 2007) the unemployment rate stood at 4.4%, and 11 years ago (May 2000), the unemployment rate was 4.0%.  This morning’s release of the May 2011 Employment Situation report by the Bureau of Labor Statistics revealed a recovery losing steam with an unemployment rate of 9.1%.  In May, only 54,000 payroll jobs were added, which is less than a quarter of the 220,000 added each month on average for the prior three months and not even enough to keep pace with normal growth in the working-age population.   The U.S. workforce needs the pace of job growth to accelerate dramatically, but the recovery is sputtering.  The highest the unemployment rate ever got in the two recessions prior to the Great Recession was 7.8% (in June 1992).  We have now been above that rate for two years and four months.

Earnings and Hours

Wage growth is low.  Average hourly wages were relatively flat in May (up 6 cents), and have grown at a 1.8% annualized rate both over the last three months and over the last year, which is far below the growth rate in the period before the recession started (see chart below).  There is absolutely no sign in these data of an elevated inflation risk. 


The length of the average workweek held steady in May at 34.4 hours, unchanged from the revised April level. The measure of average hours has grown only two-tenths of an hour over the last year, and has thus far recovered only about three-quarters of the ground it lost in the first 18 months of the downturn (its low point was 33.7 hours in June 2009). The fact that hours are still below where they were before the recession started supports the claim that businesses aren’t hiring right now because of a lack of demand. If businesses had work to be done but weren’t hiring new workers either because they couldn’t find workers with the right skills or because they were wary of the potential burdens of laws like health care or regulatory reform, they would strongly ramp up the hours of the workers they have. 

Long-term unemployment still near record high

The share of unemployed workers who have been unemployed for more than six months increased in May, from 43.4% to 45.1%, not far off from its record high of 45.6% one year ago.  There are currently 6.2 million workers who have been unemployed for longer than six months.   This is unsurprising given the length and severity of the Great Recession compared with prior recessions.

Industry breakdowns

The public sector again displayed the ongoing drag of state and local budget problems, with state government employment losing 2,000 jobs and local government employment dropping by 28,000.  Since their employment peak in August 2008, state and local governments have shed over half a million jobs.

The private sector added 83,000 jobs in May, the smallest gain in nearly a year. Of these gains, 80,000 were in private service-providing industries and 3,000 were in goods-producing industries. Manufacturing lost 5,000 jobs, the first month of losses after adding 27,000 on average for the prior three months.   The weakness in manufacturing hiring may be in some small part due to disruptions from the tsunami in Japan.  Those supply disruptions would show up in motor vehicles and parts, which saw a decline of 3,400 in May, after adding an average of 2,400 per month for the prior year.  Construction added 2,000 in May, weak compared with the average monthly gains of 16,000 jobs during the prior three months.

Temporary help services jobs dropped by 1,000, the second straight month of slight declines, not a promising sign for future hiring. Restaurants and bars saw increased employment in May, gaining 14,000 jobs, but falling short of the sector’s 32,000 per month average  growth in the prior three months.  McDonald’s “National hiring day” was not detectable in these numbers, likely because they generally do a great deal of hiring in the spring.

Employment declined in retail trade by 9,000 in May, compared with a 20,000 average monthly increase over the prior three months.  This decline may reflect some negative rebound after a large gain in April, an increase which may have been attributable to seasonal adjustments.  Health care added 17,000 jobs, a drop from the 31,000 jobs it added on average in the prior three months. 

The labor force, unemployment, and the employment-to-population ratio

The labor force participation rate held steady at 64.2% in May, still at its lowest point of the recession, though the labor force increased by 272,000 workers. Despite payroll job growth over the last year, the labor force is still smaller than it was a year ago (by around a half a million workers), though the working-age population grew by 1.9 million in that time.  Consequently, the proportion of the population that is in the labor force is now 0.7 percentage points below where it was a year ago. If the labor force participation rate had held steady over the last year, there would be roughly 1.8 million more workers in the labor force right now.  Instead, they are on the sidelines. If these workers were in the labor force and were counted among the unemployed, the unemployment rate would be 10.1% right now instead of 9.1%. In other words, the improvement in the unemployment rate over the last year (from 9.6% to 9.1%) is due to would-be workers deciding to sit out the economic storm. 

At a time like this, with the labor force not growing at a steady pace, we turn to measures other than the unemployment rate to get a sense of how the labor market is evolving. The most basic measure is the employment-to-population ratio, which is simply the share of the working-age population that has a job. This measure held steady in May at 58.4%.  Over the last year, it declined three-tenths of a percentage point, from 58.7% to 58.4%. 

Underemployment

The underemployment rate (i.e., 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 decreased slightly in May from 15.9% to 15.8%, due largely to a 271,000 decline in the number of “marginally attached” workers (workers who want a job, are available to work, but have stopped actively seeking work). In May there were a total of 24.6 million workers who were either unemployed or underemployed.

Though all groups are hurting, some have been hit particularly hard

All major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath. However, some segments have gotten hit particularly hard: young workers, workers with lower levels of schooling, racial and ethnic minorities, men, and workers with disab
ilities. 

  • In May, unemployment was 17.3% among workers age 16–24, 8.1% among workers age 25–54, and 6.8% among workers age 55+ (up 5.6, 4.0, and 3.6 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 21.6% for those with a high school degree, and 9.5% for those with a college degree (reflecting increases of 9.6 and 4.1 percentage points, respectively, since 2007).  See the recent EPI report, The Class of 2011, for more information about the plight of today’s young workers.  
  • Among workers age 25 or older, unemployment in May was 9.5% for those with a high school education and 4.5% for those with a college degree (up 4.8 and 2.4 percentage points, respectively, since the start of the recession). 
  • Unemployment in May was 16.2% for African American workers, 11.9% for Hispanic workers, and 8.0% for non-Hispanic white workers (up 7.2, 5.6, and 3.6 percentage points, respectively, since the start of the recession).
  • Unemployment was 9.5% for men, compared with 8.5% for women (up 4.4 and 3.6 percentage points, respectively, since the start of the recession).
  • Workers with a disability had an unemployment rate of 15.6% in May , compared with 8.5% for workers without a disability (up 1.9 and down 0.4 percentage points, respectively, since May 2009). (Data on labor market outcomes by disability status are not seasonally adjusted and are only available back to June 2008.)

Conclusion

In May, the labor market added just 54,000 payroll jobs.  This jobs report—which would be weak in any economy—comes at a particularly devastating time, when the labor market remains 6.9 million payroll jobs below where it was at the official start of the recession three years and five months ago. Furthermore, this number hugely understates the size of the gap in the labor market by failing to take into account the fact that simply keeping up with the growth in the working-age population would have required the addition of 4.1 million jobs since the recession started in December 2007. This means the labor market is now 11.0 million jobs below the level needed to restore the prerecession unemployment rate (5.0% in December 2007, the official start of the recession).  The U.S. workforce needs the pace of job growth to accelerate dramatically in order to reestablish full employment within any reasonable timeframe, but instead, the recovery is on pause.  Without additional stimulus, the unemployment rate may rise further.

—Kathryn Edwards and Nicholas Finio provided research assistance.


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