With anticipation of the Bureau of Labor Statistics’ Employment Report on Friday, it is important to appropriately evaluate the national labor market’s status. The fall in the unemployment rate from a high of 10% in October 2009 to its current 7.4% indicates an improving labor market; however, other measures appear more consistent with what millions of Americans are experiencing: a depressed labor market.
According to a recent Wall Street Journal article, only 6 million jobs of the 8 million lost during the last recession were added four years since the recession ended. Clearly, this decline in the number of unemployed contributed to a lower unemployment rate, but the current pace of hiring is too slow to rapidly return the labor market to prerecession levels anytime soon. Unfortunately, this all too often reported, incomplete rate masks this market’s weakness by not including those who are discouraged or those who reluctantly accepted part-time employment.
Some of the decline in the unemployment rate would be expected from the decline in baby boomers’ labor force participation, but nothing close to the steep overall decline in the labor-force participation rate. Moreover, 77% of the total number of jobs added this year have been part-time. Although these individuals will not be unemployed, they are certainly not better off. If you consider the employment-to-population ratio for those 25-54 years old in the figure below, which provides a better signal of the labor market and excludes those baby boomers who are retiring, there has been little labor market improvement.
There are a number of reasons for the depressed labor market, but the most important may be the declining incentives to work or hire because of expanding welfare-based policies and policy uncertainty, respectively.
So, this Friday we should take changes in the unemployment rate with a grain of salt and consider different measures to evaluate the labor market. Drastic federal policy changes are needed to provide an economic environment that promotes job creation; they could learn a thing or two from the Texas model.
Vance Ginn, Ph.D.