February 11, 2014

Another Disappointing Jobs Report

In December, the Obama Administration announced the worst monthly jobs gain in three years. A month later, the economy added a disappointing 113,000 jobs. Continued weak jobs reports suggest momentum needed to boost our economy has slowed, along with enthusiasm about an economic upturn this year.


“Three months in a row would mean the job market is taking a turn for the worst.” -- Stuart Hoffman, Chief Economist, PNC Financial Services, 2/9/14


Continuing Troubles with Labor Force Participation

The labor force participation rate increased slightly last month to 63 percent, remaining near the lowest level in 36 years. If the labor force participation rate were at 65.7 percent, as it was when President Obama took office, the unemployment rate would be 10.5 percent.

Labor Force Participation Rate

Labor Force Participation Rate

Four and a half years after the great recession, there are still four million fewer full-time jobs in America than before the recession.

Based on the Congressional Budget Office’s latest labor market report, the Wall Street Journal anticipates that only one-third of the millions who have dropped out of the labor force since the start of the recession in late 2007 will return in the years ahead, when the economy is stronger. CBO predicts the labor force participation rate will continue to fall even after the economy recovers, down to 60.8 percent by the end of 2024. 

The last time the national unemployment rate was near today’s rate was October 2008. The size of the labor force is unchanged since then. However, America’s population has increased by 11.8 million. While some attribute the decline in labor force participation to greater share of workers retiring rather than a weak recovery, data indicate otherwise. 

Between October 2008 and today, labor force participation among people age 20 to 24 just entering the labor force dropped from 74.3 to 70.7 percent. The Wall Street Journal cites anecdotal evidence that many workers have accepted jobs for which they are overqualified due to the problems of the economy. On the other hand, among people age 65 and older, labor force participation has increased 1.5 percent to 23.4 percent. 

Also of concern is that employment data show that one in six men age 25 to 54 are not working. This group, in their prime working years, totals 10.4 million. The Wall Street Journal considers this partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years, and partly a sign of technology and globalization transforming jobs faster than many workers can adapt. The longer people are unemployed, the harder it becomes for them to find a job. Economists say that men with few marketable skills and little education will particularly struggle to find “work that pays enough to get them off the couch.” 

Job Creation Essential for the Long-Term Unemployed

According to a paper from the Federal Reserve Bank of Boston, “workers that experience a job displacement of any length have substantially lower wages than non-displaced workers – an effect that persists for nearly 20 years after the unemployment episode.” The gap is even worse for the long-term unemployed. Ten years after returning to work, those who were out of work for less than six months earned nine percent less than those who were continuously employed. Workers who were out of work for longer than six months earned 32 percent less. 

The number of long-term unemployed is 3.6 million Americans, a decline of 232,000. This represents 35.8 percent of the unemployed – a decrease of 1.9 percent from last month. During the 1980s, when our country faced a similar recessionary period, the proportion of long-term unemployed never exceeded 27 percent. 

The January jobs report could partly reflect that extended federal unemployment benefits expired for more than one million Americans at the end of December. To receive payments, people had to look for work actively and were thus counted as part of the labor force. The drop in long-term unemployed could indicate these beneficiaries have now stopped looking.

Employment Gains Stunted

The Department of Labor reported an unemployment rate of 6.6 percent for January 2014, down 0.1 percent from December. It reported an increase of 113,000 nonfarm jobs – lower than economists’ forecast of 189,000. The employment figure for November was revised from 241,000 to 274,000 jobs created, and the figure for December was revised from 74,000 to 75,000. This month’s report reflects the annual benchmarking process and updating of seasonal adjustment factors. 

The “real” number of unemployed Americans is 20.1 million. These are people who are unemployed (10.2 million), want work but have stopped searching for a job (2.6 million), or are working part time because they can’t find full time employment (7.3 million).

According to the Wall Street Journal, January’s weak jobs report reflects a “slowdown that could heighten fears about the economic recovery and may lead some to call on the Federal Reserve to reconsider its easy-money strategy.” This reflects continued concerns that, more than four years into the economic recovery, the job market’s recovery remains far from complete as the unemployment rate remains near levels previously seen only during recessions. 

Job Growth Is Still Insufficient

Change from previous month in thousands

Job Growth Is Still Insufficient

 

Issue Tags: Economy, Labor