Commentary | Wages, Incomes, and Wealth

Signs of healing in the labor market, though unemployment remains in double digits

This morning’s Bureau of Labor Statistics report on the employment situation showed a dramatic moderating of job loss in November—payroll jobs declined by 11,000, the smallest loss since the recession started in December 2007.  There was also a positive revision to earlier data, showing that the labor market lost 159,000 fewer jobs in September and October than was previously thought.   Unemployment edged down to 10.0% in November, though that was likely a reflection of the volatility of the household survey and something of a correction to the uncharacteristically large jump up in unemployment last month.   

Other good news in the payroll survey was that the average workweek increased from 33 hours to 33.2 hours, a 0.6% increase and a positive signal—an increase in hours is typically a precursor to employment gains, as employers who have cut hours are likely to restore them for their existing employees before hiring new ones.  Much of the improvement in the labor market can be attributed to the American Recovery and Reinvestment Act (ARRA), which has likely created or saved between 170,000 and 235,000 jobs per month starting in the second quarter of this year.  Without the ARRA, November losses would have likely been over 200,000, and instead of losing 2.7 million jobs since its passage in February, we would likely have lost between 4.0 and 4.5 million.

Since the start of the recession in December 2007, an estimated 8.0 million jobs have been lost.  This number includes both the 7.2 million jobs lost in the payroll data as currently published and the preliminary annual benchmark revision (released on October 2nd), which showed an additional 824,000 jobs lost from April 2008 to March 2009.  But even this number understates the magnitude of the hole in the labor market by failing to take into account the fact that the population is always growing.  To keep up with population growth, the economy needs to add approximately 127,000 jobs every month, which translates into 2.9 million jobs over the 23 months since the start of the recession. This means the labor market is currently 10.9 million jobs below the level needed to restore the pre-recession employment rate.  In order to fully fill in the gap in the labor market in the next two years (by November 2011), employment would have to increase by an average of 581,000 jobs every month between now and then.  This kind of sustained employment growth hasn’t been seen in nearly 60 years (1950-51), when gross domestic product grew at a 9.2% annual rate. 

Although layoffs are moderating significantly, hiring is not yet picking up, and thus unemployed workers are not able to find jobs.  In November, an additional 293,000 jobless workers had joined the ranks of those unemployed for over six months.  Of the 15.4 million unemployed workers in this country, 5.9 million (38.3%) have been jobless for over six months.  This is 3.8% of the total labor force—far surpassing the previous peak of 2.6% set in June 1983.  Currently, the average unemployment spell is over six months (28.5 weeks), and the median unemployment spell is nearly five months (20.1 weeks), both of which break previous records. 

The labor force declined by another 98,000 workers in November.  In the last six months, the size of the labor force has declined by 1.2 million workers, when we would have expected it to increase by around 800,000 over that period.  When these missing workers start reentering the workforce, it will push the unemployment rate up. 

Furthermore, the official unemployment count understates slack in the labor market by excluding both the jobless who want work but have given up looking (“marginally attached”  workers) and people who are working but can’t get the full-time hours they want (“involuntary part-time” workers).  In November, there were 2.2 million marginally attached workers, 9.2 million involuntary part-timers, and 15.4 million unemployed workers in the United States, for a total of 26.9 million workers who are either unemployed or underemployed.  This represents 17.2% of U.S. workers, up from 8.7% at the beginning of the downturn in December 2007.

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

  • In November, unemployment was 19.1% among workers age 16-24, 8.9% among workers age 25-54, and 7.1% among workers age 55+ (increases of 7.5, 4.9, and 4.0 percentage points, respectively, since the start of the recession).
  • Unemployment was 15.6% among black workers, 12.7% among Hispanic workers, and 9.3% among white workers (increases of 6.7, 6.5, and 4.9 percentage points, respectively, since the start of the recession).
  • Unemployment was 11.2% for men, compared to 8.6% for women (increases of 6.2 and 3.8 percentage points since the start of the recession).
  • For workers age 25 or older, unemployment reached 10.4% for high school educated workers and 4.9% for those with a college degree (increases of 5.8 and 2.8 percentage points, respectively, since the start of the recession).

A good sign in the payroll data the addition of 52,400 jobs in the temporary help services industry, the fourth straight month of gains in that sector and the largest in 10 years.  The growth in temporary help services is very good news, as this sector tends to lead broader recoveries. 

The major sectors that added jobs included professional and business services (86,000, which includes the temporary help jobs from above), education and health services (40,000), and government(7,000, with 1,000 federal, 5,000 state, and 1,000 local jobs).  All other major sectors saw losses, though fewer than in recent months.

Retail trade lost 14,500 in November after losing 34,900 per month, on average, for the previous three months.  Construction lost 27,000 in November after losing 58,300 per month, on average, for the previous three months.   Almost all of the November construction losses were in nonresidential.  Manufacturing didn’t see as dramatic a moderation of losses, declining 41,000 in November after losing 49,000 per month, on average, for the previous three months.

Growth in the nominal hourly wages of production workers dropped from 3.9% during the first year of the recession (December 2007-December 2008) to a 2.2% growth rate over the last year, and only a 1.7% annualized growth rate over the last three months.  Nominal average weekly earnings grew 2.4% for the first year of the recession, but fell to a 1.6% growth rate over the last year.  However, with the increase in hours worked, average weekly earnings made substantial gains in November, leading to a 3.0% annualized growth rate over the last three months. 

All told, this report shows that there is finally some healing in the labor market, as indicated by both the increase in hours and mostly steady payroll employment.  Unemployment, however, is expected to continue on an upward trend until we start adding jobs in a healthy way, which will likely not happen until next spring or summer.  It is time to act boldly to create more jobs.  The Economic Policy Institute has detailed a five-point American Jobs Plan that will create or preserve at least 4.6 million jobs in the first year, and describes how a modest financial transactio
ns tax could recoup the entire cost of the plan within 10 years.  

(Research assistance from Kathryn Edwards and Andrew Green)