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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 June, that rate stayed flat at 62.8%. Tara Sinclair, an economist at George Washington University has told Forbes that she sees the stagnant wage growth and the labor participation rate closely related. “If employers see this shadow labor force out there, there is no pressure to raise wages.”

Part of that low “labor participation rate” may be some of the discouraged long-term unemployed, as many commentators have asserted. Long-term unemployment constituted a full third of the 9.5 million unemployed in June and remains a significant concern, but we do not know exactly how many of these people have ceased looking for work.

Jason Furman, chairman of the White House Council of Economic Advisers, writing in the Washington Post on July 7, 2014, reminds us that a range of studies shows that about half the decline in the labor participation rate is due to the retirement of “baby boomers.” The rest is due to trends unrelated to aging, such as the decline in the participation by men ages 25 to 54 since the 1950s and the decline of women in those same prime working years since the late 1990s. In fact, a 2006 study by economists at the Federal Reserve that considered these trends projected that the labor force participation rate would fall to 62.9% this year. Furman says that whenever the unemployment rate is elevated, the labor participation rate will be lower as people seek further education, delay reentering the workforce after leaving for reasons such as caring for a newborn, or are part of the long-term unemployed and stop looking for work because they are discouraged.

One significant part of the low labor participation rate unaddressed by Mr. Furman, is the decline in the participation rates of the youngest workers, the “millennials.” According to the Christian Science Monitor, (July 3, 2014) a recent analysis by Georgetown University’s Center on Education and the Workforce, some 40% of the unemployed are “millennials.” This may account for new research that is being undertaken by EPI, which indicates that the current unemployment rate vastly understates the weakness in today’s labor market because there is a large pool of “missing workers” – potential workers who are neither employed nor actively seeking a job. Because of weak job opportunities, EPI estimates that more than 5.9 million people are “missing workers;” that the real unemployment rate is closer to 9.6%, if it included these “missing workers.”

EPI’s quibble with the conventional unemployment rate is akin to the famous “U-6” rate sometimes used by economists as the broadest calculation of unemployment. The “U-6” rate combines the unemployed, the underemployed and discouraged workers. Interestingly, despite being higher than the unemployment rate, the “U-6” rate is still at a 6-year low!

Unemployment is a basic concern at NETWORK because of our vision of economic equity, which requires

  • valuing the worth and dignity of every person
  • meeting the basic needs of the whole person, physical, spiritual and intellectual, and
  • a relational society which calls us beyond selfishness to community – to the common good

We seek economic justice, which includes adequate resources for a family to lead a dignified life.