Economic Indicators | Wages, Incomes, and Wealth

Jobs Picture, May 2, 2008

May 2, 2008

Nation’s payrolls decline again, and hours, wages, and incomes feel the squeeze

by Jared Bernstein with research assistance from James Lin

Today’s Bureau of Labor Statistics report indicates that the nation’s payrolls contracted for the fourth month in a row, down 20,000 in April, with large losses in construction, manufacturing, and retail sales partially offset by gains in other areas. Overall employment is now down 260,000 jobs from its peak last December.

The unemployment rate fell slightly to 5.0%, a statistically insignificant change. Over the past year, however, the jobless rate is up from 4.5%.

While employment fell less than expected, other indicators from today’s report show continuing and deepening problems in the job market. The downturn is having two negative effects on workers’ paychecks: slower hourly wage growth and fewer average hours worked per week. Hourly wages grew 3.4% compared to one year ago, the slowest rate since January 2006. Given the decline in weekly hours worked, weekly earnings were up 3.1% compared to April 2007, well below the rate of inflation (price growth is not yet available for April, but has been growing above 4%).

Another pointed indicator of this phenomenon is the sharp increase in involuntary part-time workers: those who want a full-time job but can only find part-time work. At 5.2 million, this indicator of under-employment is up 850,000 over the past year. At 3.6% of total employment, involuntary part-time work is the highest it has been since November 2005.

While layoffs and job losses are of course key signs of the slowing economy’s effect on the job market, it is worth remembering that most workers keep their jobs in recessions. Even so, while fewer workers may have lost jobs last month, the downturn is placing downward pressure on the earnings of the vast majority who remain at work.

The share of long-term unemployed—those jobless for at least 27 weeks—also rose last month, from 16.7% in March to 17.8% in April. The typical, or median, unemployment spell increased by over a week from March (at 8.1 weeks) to April (at 9.2 weeks). These indicators typically rise in recessions, as jobless workers are unable to find work, underscoring the need for an extension of unemployment insurance benefits.

Most industries shed jobs last month, as has been the case since last November (i.e., less than 50% of industries have been adding jobs since then). Notably, construction losses have spread from residential housing—reflecting the deep weakness in that sector—to non-residential building, which is also now on a consistent downtrend. Since the peak in construction employment in September 2006, the sector has shed almost 460,000 jobs.

Factory employment continues to slide, despite the export-boosting effect of the weaker dollar. In fact, the decline of 43,000 jobs in durable manufacturing (heavy industry) last month was the largest monthly loss since July 2003.

Although the broad service sector added jobs last month, jobs specifically in retail declined by 27,000 in April and by about 130,000 over the past four months. This loss likely reflects slowed spending by consumers who are increasingly pinched by high gas and food prices amidst slower wage growth. As the rebate checks go out, employment in retail should be monitored to see if higher consumer spending slows or reverses the trend of declining retail jobs, as this is one area where we would expect the stimulus package to boost employment.

Other services with positive gains last month included health care, which was up 37,000, and professional services (office jobs), which was up 39,000. This last gain was a reversal of a fairly strong negative trend in office jobs over the prior three months. Since this is a large and important sub-sector in the service sector, it bears close watching in future months to see if this is a true trend reversal or a one-month blip.

A big question from today’s report is whether the less-than-expected losses are the harbinger of a new, positive trend or simply a monthly pause in the larger losses from earlier this year. Given the anemic rate at which the economy is expanding, chances are that April was simply a pause in the midst of a more negative trend. Real gross domestic product, which is rising only at a 0.6% annual rate over the past six months, needs to grow around 2.5% to create enough economic activity to absorb persons joining the job market and find jobs for the newly laid off. But even a 2.5% rate of growth would just hold the unemployment rate steady—i.e., prevent it from rising. In order to reverse the rise in unemployment, we need a period of considerably faster growth, and that is unlikely to occur this year.

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