This morning’s release of the December 2011 employment situation report, which marked four years since the official start of the recession in December 2007, capped off 2011 on a positive note.  Both the establishment survey and the household survey showed improvement – the labor market added 200,000 jobs, hours and wages were up, unemployment ticked down, underemployment dropped, and the duration of unemployment spells declined.  This is a step in the right direction.

MORE: Sort through updated graphs using data from today’s report

However, it will take many years of reports this strong or stronger to bring the labor market back to health.   The jobs deficit of the 2008-09 period, defined as the number of jobs lost since the recession started plus the jobs we should have added to keep up with the normal growth in the working-age population, remains well over 10 million, and at December’s growth rate the United States will not recover its pre-recession unemployment rate until 2019.

Despite relatively strong month, December caps off two years of little improvement in the labor market

Two years ago, in December 2009, the unemployment rate was 9.9 percent, and it is now 8.5 percent. How much improvement does that drop actually represent?  Given weak job prospects, many would-be workers dropped out of (or never entered) the labor force over this period, a trend that reduces the measured unemployment rate but does not represent real improvement in employment.  If the workers who comprise the drop in the labor force participation rate (from 64.6 percent to 64.0 percent) over the last two years were counted as unemployed, the unemployment rate would be 9.5 percent now instead of 8.5 percent.

The trend in the employment-to-population ratio, which is the share of the working-age population that has a job, also illustrates the challenge. This measure increased from 58.4 percent in the fourth quarter of 2009 to 58.5 percent in the fourth quarter of 2011, a tiny change and well below the 63.3 percent average in the first quarter of 2007.

Long-term unemployment

The share of unemployed workers who have been unemployed for more than six months decreased in December to 42.5 percent, an improvement but still not far below its record high of 45.5 percent in March 2011. (By comparison, in 2007 the share averaged 17.5 percent). The number of workers unemployed for more than six months decreased by 92,000 in December, to 5.6 million (compared with a 1.2 million average in 2007). The fact that we still have large numbers of long-term unemployed is unsurprising given that there have been over four unemployed workers per job opening since January 2009.

Hours and wages up

The length of the average workweek increased in December to 34.4 hours, restoring hours to where they were last spring.  Average hours have thus far made up just three-fourths 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).

Average hourly wages increased by 4 cents in December and have risen at a 1.9% annualized rate over the last three months.  This remains far below the pre-recession growth rate (3.4 percent from December 2006 to December 2007), as persistent high unemployment has exerted strong downward pressure on wage growth. With hours and hourly wages up, average weekly wages grew more strongly at $3.70, and they have risen at a 3.1% annualized rate over the last three months.

Demographic breakdowns

Unemployment in December was 8.7 percent for those age 25 or older with only a high school education, and 4.1 percent for those age 25 or older 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 downturn, a trend running counter to the notion that there is high unemployment because employers are unable to fill their demand for workers with higher education credentials.

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 and racial and ethnic minorities have been and continue to be hit particularly hard.

• In December, unemployment was 16.7 percent among workers age 16–24, 7.6 percent among workers age 25–54, and 6.2 percent among workers age 55 and older (up 5.0, 3.6, and 3.0 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 21.3 percent for those with a high school degree and 9.2 percent for those with a college degree (reflecting increases of 9.3 and 3.7 percentage points, respectively, over the annual average of 2007; 12-month averages are used here since seasonally adjusted data are not available for these series.)
• Unemployment in December was 15.8 percent for African American workers, 11.0 percent for Hispanic workers, and 7.5 percent for white workers (up 6.8, 4.7, and 3.1 percentage points, respectively, since the start of the recession).
• Men saw a much larger increase in unemployment during the recession, but have seen relatively stronger improvements in the recovery. The unemployment rate reached its pre-recession low in late 2006 and early 2007, at 4.4 percent for men and 4.3 percent for women. Male unemployment peaked at 11.2 percent in October of 2009, and has since fallen to 8.7 percent.  Female unemployment continued to rise for another year, peaking at 9.0 percent in November 2010; it since has fallen to 8.3 percent.

Industry breakdowns

As has been the case for more than three years, budget crises at the state and local level hurt state and local jobs growth. In December, state government employment was flat, and local government employment dropped by 14,000 jobs.  Over the last year, state and local jobs have declined by 20,000 per month on average (-5,000 state, -15,000 local), an enormous drain on the recovery.

Most of the private sector gains in December were in service-providing industries: Private service-producing industries added 164,000 jobs while goods-producing industries added 48,000 jobs. Construction added 17,000 jobs in December, after staying essentially flat on average for the last year, while manufacturing gained 23,000 jobs, after adding around 3,000 on average for the prior three months.  All of December’s manufacturing gain was in durable goods.

Retail added 27,900 jobs in December, in line with its average growth rate of 25,800 over the prior three months.  Couriers and messengers saw an outsized gain of 42,200, but, according to BLS, that growth may have been due to the seasonal-adjusted model not properly accounting for increased online purchasing during the holidays.  Employment in couriers and messengers was likely overstated by around 40,000; without this blip, total payroll job growth in December was only 160,000.

Restaurants and bars added 24,000 jobs, slightly off the industry’s average of the prior three months of 30,000. However, employment in restaurants and bars is now just 20,000 shy of being back up to pre-recession levels.  Health care added 22,600 jobs, below its average growth rate of 27,600 in the prior three months. Temporary help services declined by 7,500, well below that sector’s average gain of 13,600 in the prior three months.

Underemployment

The “underemployment rate” (the U-6 measure of labor underutilization) is the BLS’s 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 December from 15.6 percent to 15.2 percent, in large part due to a 371,000 decline in the number of involuntary part-time workers to 8.1 million. In December there were 23.8 million workers who were either unemployed or underemployed (the 8.1 million involuntary part-time workers plus 13.1 million officially unemployed and 2.6 million marginally attached). Racial and ethnic minorities have been particularly hard hit by underemployment.

Conclusion

This report shows the labor market ending 2011 on a better track, with good gains across almost all dimensions, but job growth needs to be even stronger to get the nation on a fully productive track.  To get back to the pre-recession unemployment rate in four years – by the end of 2015 – would require adding around 320,000 jobs every month between now and then.   Expectations are that sustained robust job growth is at least a year off.  The U.S. workforce can’t afford to wait. The ongoing crisis in the labor market calls for substantial additional stimulus to generate jobs.

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