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Blog: U.S. Jobs Report in June Shows Both an Improved Economy and the Legacy of the Great Recession

Jul 14, 2014 | By Carolyn Burstein, NETWORK Communications Fellow

The Bureau of Labor Statistics released a surprisingly strong jobs report on July 3 that clearly indicated that employers added jobs at a robust clip in June. While payroll employment jumped by 288,000 in June and unemployment fell to 6.1% (20% lower than a year ago), there was hardly any real growth in the labor force, leaving the percentage of people with a job well below where it was at the start of the Great Recession. As the analysis of the Center of Budget and Policy Priorities (CBPP) added: “Nearly a third of the unemployed have been looking for work for 27 weeks or longer and encounter more re-employment obstacles that the typical jobseeker. That’s why Congress should act immediately to restore emergency federal unemployment insurance.”

On the optimistic side of the ledger, hiring improved in a wide range of sectors, including many middle-paying and high-paying jobs, not just low-paying jobs. Jobs were added in health care, professional and business services, education, manufacturing, retail, restaurants and more. Even the rate of the long-term unemployed fell to its lowest level since 2009 and the rate of unemployment among African-Americans fell from 11.5% to 10.7% -- still far too high! International trade data also offered encouraging signs for the economy. Exports rose to a record high, while imports declined, leading to a narrowing of 5.6% in our trade deficit.

The BLS report also pointed out that job creation levels for smaller companies are now approaching normal levels. With the labor market improving, the Federal Reserve is expected to end its monetary stimulus program (used to keep interest rates low) as early as October 2014.

The Center for Economic and Policy Research (CEPR) notes an interesting correlation between the issue of voluntary part-time work and the Affordable Care Act. A largely overlooked item in the BLS report was the big jump in the number of people who report voluntarily working part-time (a rise of 830,000 or 4.4% over a year ago). One of the main purposes of the ACA was to allow people to get health insurance outside of employment, and the ACA has succeeded in allowing more than 12 million people to get insurance either through Medicaid or the exchanges. These are people who may previously have worked fulltime in order to obtain health insurance for themselves and their families, and now that link has been severed. They are now able to spend more time with their young children, care for an ill or disabled family member or whatever they need to do.

Another factor on the positive side of the employment ledger is the rise in the share of unemployment due to people voluntarily quitting their job, surely a sign of confidence that another job will be available soon.

Yet the signs of the Great Recession from December 2007 through June 2009 linger and bedevil a totally optimistic viewpoint, according to a special series “Chart Book” written by the CBPP. Demand for goods and services, they claim, is still far less than the economy is capable of supplying; in other words, overall economic growth has been quite anemic, a legacy of the Great Recession. This output gap is manifested in a high rate of unemployment and substantial idle productive capacity among businesses. Congressional Budget Office (CBO) projections show the gap closing slowly over the next several years as actual and potential GDP converge. CBO estimates that if demand were stronger and there were no output gap, the unemployment rate would be 5.5% instead of 6.1%.

As we know, job losses during the Great Recession were unprecedented and, because of population growth over the past several years, the economy will have to maintain the pace of job creation of the past 5 months (about 240,000 jobs a month) to restore full employment even as slowly as CBO estimates. EPI researchers estimate that 6.7 million more jobs would have been needed to keep up with population growth.

As those of us who are attuned to the issue of “income inequality” realize, a major part of the reason for the output gap (or the dichotomy between demand and supply) rests with stagnant wages – wage gains were again muted in June, rising just 2% over the past year (the long-run average annual growth of wages is 3.5%). It is wage growth that powers consumer spending. Yet, median U.S. annual household income is $53,385, only 3.3% higher than the low-point in income reached in August 2011, according to Sentier Research. This figure underscores the slow rebound in workers’ pay since the Great Recession.

We have all been alerted to the low “labor participation rate” since the Great Recession. In J