Economic Indicators | Wages, Incomes, and Wealth

Unemployment drops to 9.7% despite more job losses

Jobs Picture for February 5th, 2010

By Heidi Shierholz with research assistance from Kathryn Edwards and Andrew Green

This morning’s release by the Bureau of Labor Statistics of the January 2010 employment report showed 20,000 jobs lost in January. Furthermore, revisions released today showed that the country had 930,000 fewer jobs last March and 1.4 million fewer jobs last December than previously estimated. The total number of payroll jobs lost since the start of the recession in December 2007 now stands at 8.4 million. In a testament to both the enormity of the current crisis plus the very weak jobs growth of the 2000-07 business cycle, the U.S. labor market started 2010 with fewer jobs than it had a decade ago, in January 2000, though the labor force has grown by almost 11 million workers since then.

Given the slight decline in payroll jobs in January, there was an inexplicable decline in unemployment in January from 10% to 9.7%. While the improvement in the unemployment rate is a welcome sign, at this point the drop can largely be attributed to the higher volatility of the much smaller household survey; given what happened in the establishment survey, one would have expected the unemployment rate to hold steady or increase slightly in January.

As mentioned above, since the start of the recession in December 2007, the labor market has shed 8.4 million payroll jobs. This number, however, understates the size of the gap in the labor market by failing to take into account the fact that simply to keep up with population growth, the labor market should have added around 2.6 million jobs since December 2007 (see Chart). This means the labor market is now roughly 11 million jobs below what would restore the pre-recession unemployment rate. In order to fully fill in this 11 million jobs gap in the labor market in three years (by January 2013), employment would have to increase by over 400,000 jobs every month between now and then. (Note: The methodology for calculating the size of the gap and what would be needed to fill it can be found at the end of this report.)

[chart: The Jobs Hole]

In a labor market with well over six unemployed workers per job opening, unemployed workers continue to have a very hard time finding work. In January, 183,000 jobless workers crossed the six-months-unemployed mark. Of the 14.8 million unemployed workers in this country, 6.3 million (41.2%) have been jobless for over six months. In January, the average unemployment spell was 30.2 weeks and the median unemployment spell was 19.9 weeks, with the mean representing a record high. 

The 9.7% unemployment rate understates weakness in the labor market by excluding both the jobless who want work but have given up actively looking (“marginally attached”  workers) and people who are working but can’t get the full-time hours they want (“involuntary part-time” workers).  In January, there were 2.5 million marginally attached workers, 8.3 million involuntary part-timers (down from 9.2 million in December), and 14.8 million unemployed workers in the United States, for a total of 25.7 million workers who are either unemployed or underemployed. This represents 16.5% of U.S. workers, up from 8.8% at the start of the recession, but down from the 17.3% in December.

Demographic breakdowns in unemployment show that while all major groups have experienced substantial increases over this downturn, men, racial and ethnic minorities, young workers, and workers with lower levels of schooling are getting hit particularly hard:

  • In January, unemployment was 18.9% among workers age 16-24, 8.6% among workers age 25-54, and 6.8% among workers age 55+ (increases of 7.1, 4.5, and 3.6 percentage points, respectively, since the start of the recession).
  • Unemployment was 16.5% among black workers, 12.6% among Hispanic workers, and 8.7% among white workers (increases of 7.5, 6.3, and 4.3 percentage points, respectively, since the start of the recession).
  • Unemployment was 10.8% for men, compared to 8.4% for women (increases of 5.7 and 3.5 percentage points, respectively, since the start of the recession).
  • For workers age 25 or older, unemployment reached 10.1% for high school educated workers and 4.9% for those with a college degree (increases of 5.4 and 2.8 percentage points, respectively, since the start of the recession).

Turning to the payroll numbers, we first highlight some new data. Until today, wage and hour information were only available for production and nonsupervisory workers on private payrolls. Now these data are also published for all workers on private payrolls. The following Table shows employment, nominal hourly wages, nominal weekly wages, and average hours for the past four years for workers on private payrolls. 

[table: Private non-farm employment, hours and earnings]

After very weak growth in the first three quarters of 2009, wages now appear to be growing modestly. Nominal weekly wages for all workers on private payrolls grew at a 2.9% annualized growth rate over the last four months, after growing at a 0.5% annualized rate in the first three quarters of 2009. With inflation at roughly 3%, this nevertheless means real paychecks are not currently rising. 

The length of the average workweek increased slightly in January, from 33.8 to 33.9 hours. All else equal, an increasing workweek at this point is a sign of hope for a broader recovery, since hours are likely to pick up before employment picks up as employers who have cut hours will restore the hours of their existing workforce before hiring new employees. To provide an idea of the scope of this factor, the decline in the total number of hours worked in the economy since the start of the recession that is due to reduced hours alone (i.e., not job loss) is equivalent to 2.5 million jobs. This means there is an enormous amount of hours to be restored before hiring picks up. 

One good sign in the payroll data was in temporary help services, which added 52,000 jobs, the fourth straight month of gains. This is good news because this sector tends to lead broader recoveries. One key sector adding jobs for the first time in nearly three years was durable goods manufacturing, which added 13,000 jobs, all in motor vehicles and parts, which added 22,700 jobs. Retail trade also added 42,100 jobs, and health care added 14,500. 

Government lost 8,000 jobs under the pressure of budget cuts (-18,000 state government jobs and -23,000 local government jobs), and would have lost much more if it weren’t for the addition of 33,000 federal government workers, most of them temporary workers hired for the 2010 Census. Construction lost 75,000 in January, mostly in nonresidential. 

In January 2009, the labor market shed 779,000 jobs. This report shows enormous improvement from last year, but assuming that the recession technically ended sometime last summer, we are now well into a jobless recovery. With the number of jobs needed for the job market to recover at 11 million and growing, it is time for bold action to create jobs.

Methodology: The jobs gap. The jobs gap is a measure of the number of payroll jobs needed to return to the pre-recession rate of unemployment (while holding the pre-recession labor force participation rate constant, meaning no erosion in the relative size of the labor force).

Calculating the size of the current jobs gap. The gap is th
e number of jobs lost since the start of the recession (December 2007) plus the number of jobs that would have been needed to keep up with population growth over this period. The working-age population has grown 1.9% (0.9% annually) since the start of the recession, according to the Bureau of Labor Statistics’ household survey. Because there tend to be large discontinuities in the population data each January due to the fact that the January data are adjusted to reflect updates in the U.S. Census Bureau population controls, only January population data were used, and other months’ population data were extrapolated.

Calculating how many jobs are needed every month to close the gap in three years. We assume that the population will continue to grow at the same annual rate (0.9%) it grew from January 2009 to January 2010. How many jobs are needed each month to close the gap by January 2013 is the difference between January 2010 payroll employment and what payroll employment in January 2013 would be if it had grown at the same rate as the working-age population from December 2007 to January 2010 and continues to grow at a 0.9% annual rate until January 2013, divided by the number of months (36).

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