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PORTSIDE  August 2010, Week 1

PORTSIDE August 2010, Week 1

Subject:

A Labor Market Stuck in Neutral

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Date:

Sat, 7 Aug 2010 10:57:25 -0400

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A Labor Market Stuck in Neutral

Heidi Shierholz
Economic Policy Institute 
August 6, 2010

The July 2010 employment report released this morning by
the Bureau of Labor Statistics captured a labor market
bogged down in a very painful situation.  The
unemployment rate held steady at 9.5% in July, while the
private sector added just 71,000 jobs--larger than the
last two months (which averaged 41,000 after downward
revisions), but smaller than in March and April (which
averaged 200,000).

The primary reason the unemployment rate did not rise in
July is that the labor force officially shrank by
181,000 workers.  Those that dropped out of labor force
were prime-age workers, while the number of young
workers and older workers increased. The teen (age
16-19) labor force increased by 70,000, the young adult
(age 20-24) labor force increased by 17,000, the prime-
age (age 25-54) labor force decreased by 325,000, and
older workers (age 55+) increased by 46,000.  If the
181,000 workers that made up the decline had instead
remained in the labor force and were counted among the
unemployed, the unemployment rate in July would have
been 9.6%.  This points to another ongoing issue in the
labor market, the backlog of "missing workers," that is,
workers who dropped out of (or never entered) the labor
force during the downturn.  In the last three months,
the labor force has declined by 1.2 million workers,
reversing much of the 1.7 million increase in the labor
force in the first four months of the year.  This
clearly shows how the forward momentum from earlier this
year has largely evaporated.

Another useful measure is to simply look at the share of
the population that is employed, the employment-to-
population ratio.  Over the last three months, that
ratio has declined significantly, from 58.8% to 58.4%
(but due to the decline in labor force participation,
the unemployment rate actually somewhat misleadingly
showed improvement over this period, moving from 9.9% to
9.5%).

To get an idea of the size of the current backlog of
missing workers, consider the following:  The labor
force should have increased by around 3.6 million
workers from December 2007 (the start of the recession)
to July 2010, given that the working-age population grew
over this period. Instead the size of the labor force
actually decreased by 309,000. This means that the pool
of "missing workers" now numbers around 3.9 million,
none of whom are reflected in the official unemployment
count.  As these workers enter (or re-enter) the labor
force in search of work, this will contribute to keeping
the unemployment rate high.

Payroll jobs

The total number of payroll jobs declined by 131,000 in
July, though the shedding of 143,000 temporary Census
jobs more than accounted for that loss. In order to get
a handle on the fundamentals of the labor market this
summer, it is and will continue to be important to look
at the payroll numbers excluding changes in temporary
Census employment. (The Census still has 196,000
temporary employees on its payroll. These jobs will also
disappear in the next couple months.)

Excluding changes in temporary Census hiring, the number
of payroll jobs increased by 12,000 in July.  The
private sector added 71,000 jobs, while state and local
governments--their budgets crunched--shed 48,000 jobs
(-10,000 state, -38,000 local).  The federal government
(excluding changes in temporary Census jobs) shed 11,000
jobs.

Hours

The length of the average workweek increased slightly in
July, from 34.1 to 34.2 hours, restoring hours to their
May level.  All the growth was in the goods-producing
sector, while the service-producing sector held
steady.From their low of 33.7 last fall, average hours
(for all private employees) are up by 1.5%.  However, at
the start of the recession in December 2007, the length
of the average workweek in the private sector was 34.7
hours, so there remains a great deal of ground to make
up.  Simply restoring average hours worked by all 107.7
million private sector workers from 34.2 back to 34.7
would be equivalent in total hours worked to adding 1.6
million new jobs at current average hours. The
restoration of average hours will therefore be an
ongoing drag on new hiring.

Wages

Average hourly wages increased in July, from $22.55 to
$22.59 in July.  Nominal hourly wage growth has been
generally slowing since the summer of 2008 and remains
low--wages grew at a 1.6% annualized rate over the last
three months.  They grew at 1.8% over the last year,
somewhat faster than inflation (which was 1.1% from June
2009 to June 2010, the most recent data available).
After falling faster than average hourly wage growth for
the first year and a half of the recession, average
weekly earnings growth has seen some improvements since
the spring of 2009, as average hours have been generally
improving. July's increase in average hours meant weekly
paychecks increased further - after growing at a 2.5%
annualized rate over the prior three months, average
weekly paychecks grew at a 5.8% annualized rate in July.

Long-term unemployment

The share of unemployed workers who have been unemployed
for over six months dropped from 45.5% to 44.9%.  This
improvement likely reflects workers dropping out of the
labor force after exhausting unemployment insurance
benefits.  Despite the improvement, the long-term
unemployed share remains the fourth-highest share on
record, and there are still 6.6 million workers who have
been unemployed for longer than six months.  These
dramatic figures are unsurprising given that there
remain roughly five unemployed workers per job opening
(note, that doesn't mean there are five applicants for
every job--there could be a huge number of applicants
for each job posting as job seekers apply for multiple
jobs--instead it means that for every five unemployed
workers there is literally only one job available).  The
median, or typical, unemployment spell dropped from 25.5
to 22.2 weeks, and the average unemployment spell
dropped from 35.2 to 34.2 weeks.

Underemployment

The "underemployment rate," or the U-6 measure of labor
underutilization, is a more comprehensive measure of
labor market slack than the unemployment rate because it
includes not just the officially unemployed, but also
jobless workers who have given up looking for work, and
people who want full time jobs but have had to settle
for part-time work (note, however, it does not include
people who are underemployed in the sense that they have
had to take a job that is below their skills, training,
or experience level).  This measure was at 16.5% in
July, meaning that one in six U.S. workers was either
unemployed or underemployed.  This was unchanged from
June, masking an increase of 110,000 in the number of
"marginally attached" workers (jobless workers who have
given up looking for work), and a decline of 98,000 of
involuntary part-time workers.  In July, there were a
total of 25.8 million workers who were either unemployed
or underemployed.

Demographics

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

    * In July, unemployment was 18.6% among workers age
    16-24, 8.5% among workers age 25-54, and 6.9% among
    workers age 55+ (increases of 6.8, 4.4, and 3.7
    percentage points, respectively, since the start of
    the recession in December 2007).

    * Unemployment was 15.6% among black workers, 12.1%
    among Hispanic workers, and 8.6% among white workers
    (increases of 6.6, 5.8, and 4.2 percentage points,
    respectively, since the start of the recession).

    * Unemployment was 10.4% for men, compared to 8.5%
    for women (increases of 5.3 and 3.6 percentage
    points since the start of the recession).

    * For workers age 25 or older, unemployment reached
    10.1% for high school educated workers and 4.5% for
    those with a college degree (increases of 5.4 and
    2.4 percentage points, respectively, since the start
    of the recession).

Sectors

The shedding of public sector jobs at the state and
local level remains an ongoing drag on employment
growth.  In July, state and local governments shed
48,000 jobs (-10,000 state, -38,000 local).  Since their
peak in August 2008, state and local governments have
shed 316,000 jobs (-69,000 state, -247,000 local).

After adding jobs for nine straight months, temporary
help services lost 6,000 jobs in July. This does not
bode well for future jobs growth.  Construction saw a
loss of 11,000 jobs, all in residential, though 10,000
of the construction losses were due to a strike.
Manufacturing added 36,000 jobs, its seventh straight
month of gains, but most of this (20,700) was in motor
vehicles and parts manufacturing, as Detroit auto makers
did not shut down in July, as they usually do, to retool
for new models.

Retail trade gained 7,000 jobs in July, after losing an
average of 4,000 for the prior three months.   Financial
activities lost 17,000 in July, with 9,000 of those lost
in real estate.  Leisure and hospitality added 6,000
jobs in July, after adding an average of 14,000 for the
prior three months.  One bright spot was health care,
which added 27,000 jobs in July, after adding an average
of 15,000 for the prior three months.

The recession began in December 2007, and employment
reached its lowest point two years later, in December
2009.  Since last December, the private sector has been
adding jobs.  The following chart shows percent changes
in employment over these two periods by sector.  Over
the first two years of the recession, construction
employment declined by 24.0%, and has continued to
decline since then.  Manufacturing lost 16.0% over the
first two years, but is now adding jobs, increasing by
1.6% since last December.   Employment in leisure and
hospitality declined by 4.0% over the first two years,
but has increased by 0.8% since then.  Professional and
business services declined by 8.7% in the first two
year, but increased by 1.1% since then--the swing in
that sector was driven in large part by temporary help
services, which lost 32.6% of employment from  December
2007 to September 2009 (the trough for temp help), and
has gained 21.1% since then.  All together, private
service-producing sectors lost 4.7% in the first two
years, and have gained 0.6% since then.

jobs chart: http://tinyurl.com/32vy26t

The labor market remains 7.7 million payroll jobs below
where it was at the start of the recession in December
2007.  And this number understates the size of the gap
in the labor market by failing to take into account the
fact that, simply to keep up with the growth in the
working-age population, the labor market should have
added around 3.2 million jobs since December 2007.  This
means the labor market is now roughly 10.9 million jobs
below the level needed to restore the pre-recession
unemployment rate (5.0% in December 2007).  To get down
to the pre-recession unemployment rate within five
years, the labor market would have to add roughly
285,000 jobs every month for that entire period. In
July, excluding changes in temporary Census hiring, the
labor market added 12,000.

Conclusion

With a deficit of 10.9 million jobs--a 9.5% unemployment
rate--the private sector is not yet able to provide a
robust recovery, and it is time for the government to do
substantially more to create jobs so the backlog of
unemployed workers in this country can have a
desperately needed chance to get back to work.
Yesterday, the Senate voted to approve a bill that
included $26 billion in aid to states and school
districts; the House is expected to vote on it on
Tuesday. With state and local government shedding 48,000
jobs in July, this relief is crucial.

-Research assistance from Kathryn Edwards and Andrew
Green

 c 2010 Economic Policy Institute. All rights reserved.

_____________________________________________

Portside aims to provide material of interest
to people on the left that will help them to
interpret the world and to change it.

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