December 5, 2003
Job growth gives labor market minimal boost
According to today’s report from the Bureau of Labor Statistics, the nation’s employers added a fewer-than-expected 57,000 jobs in November, while the unemployment rate edged down slightly to 5.9%. Though payrolls have expanded consistently over the past four months, adding 328,000 jobs since July—82,000 per month—the labor market has yet to achieve growth comparable to that in other parts of the economy.
The unemployment rate has remained between 5.6% and 6.4% since the recovery began two years ago, and this sustained period of relatively high unemployment has led to diminished growth of hourly wages (see figure). Since November 2002, hourly wages are up 2.1% (approximately the rate of inflation), the slowest annual growth rate since March 1987. On a quarterly basis, wages are growing at an annual rate of less than 1.0%, well below inflation. Thus, despite high productivity and profits, many workers are losing ground in the current labor market.
Long-term unemployment also remains a problem, as the share of those out of work for six months or more grew to 23.7%, the highest level since July 1983, when the unemployment rate was 9.4%. The average number of weeks spent job hunting rose to 20.1 weeks, also a recent high. The fact that historically large shares of the unemployed face long-term joblessness reveals the continued mismatch between the number of job seekers and the number of available jobs. In other words, two years into the recovery, the supply of labor far outpaces the demand for workers.
One factor contributing to this dynamic is the increase in labor force growth over the past few months. While these values fluctuate monthly, the labor force is up by 732,000 over the past two months, compared to a decline of 551,000 over the prior three months. As the labor market improves, the pace of labor market growth is likely to continue, implying the need for faster job creation to lower unemployment.
Another indicator of current weak conditions is the increase in involuntary part-time workers (i.e., those who would prefer a full-time job). There are now 4.9 million of these workers, up 97,000 since last month and 1.6 million since the recession began. While the unemployment rate does not include involuntary part-time workers, they are counted in the “underemployment rate,” which was 10.1% in November.*
On the positive side, while job gains were moderate, the construction sector and many service industries continue to add jobs. Business services added 20,000 jobs, driven by continued gains in temporary hiring, another sign of employers’ caution regarding permanent hires. Health services continued to grow, as did hotels and restaurants, adding 25,000 and 21,000 jobs, respectively.
Manufacturing lost 17,000 jobs, and while losses in this sector have moderated recently, this is the 40th consecutive month of declines, dashing hopes that recent strength in manufacturing activity would finally boost employment in that vital sector.
The loss of quality jobs, such as those in manufacturing, has led to lower average wages among industries gaining jobs relative to those industries that are losing jobs. EPI analysis of private-sector employment over the recovery reveals that since the recovery began, the sectors that have added jobs pay lower wages than those industries that have shed jobs. Sectors gaining employment pay an average of $14.65 per hour, while sectors losing jobs pay $16.92.
A final concern comes from retail hiring, which fell by 28,000 last month. That decline was largely driven by the grocery store workers’ strike on the West Coast, but the fact remains that without those losses, job growth in the sector would have been flat after adjustments for seasonal hiring. Department store hiring was down slightly from October, as was that of clothing stores. These results match the reports of November retail sales, which, while positive, reveal weaker sales than were initially reported for the holiday rush thus far.
The economic recovery turned two years old in November, and the good news is that the jobless recovery appears to be in the past and that unemployment is slowly edging down. But the economy continues to generate far fewer jobs than are necessary to employ the growing workforce. At this point in the last business cycle—in the early 1990s—178,000 jobs were being added per month. Over the past four months in this recovery, the comparable number is 82,000, less than half the jobs created in the early 1990s. At the same time, persistently high unemployment has led to slower wage growth, and this has to the potential to constrain consumption moving forward, especially given the reduction in stimulus from tax cuts and mortgage refinancing.
* Seasonally adjusted EPI calculation.
with research assistance by Yulia Fungard and Sujan Vasavada
For more information on November job and wage data, go to EPI’s new web feature JobWatch.org.
The Economic Policy Institute JOBS PICTURE is published each month upon release of the Bureau of Labor Statistics’ employment report.
EPI offers same-day analysis of income, price, employment, and other economic data released by U.S. government agencies. For more information, contact EPI at 202-775-8810.