Going 20 mph when we need to be going 60: The December jobs report

As in previous months there is both good news and not so good news embedded in today’s employment report. The large decrease in the unemployment rate from 9.8 percent to 9.4 percent is certainly welcomed news. However, a good part of that decrease came from more than a quarter of a million workers dropping out of the labor market, not just finding new jobs. The economy added 103,000 net new jobs in December 2010 and there were upward revisions in employment for the months of October and November. More good news in the report included the fact that since December 2009 employment is up 1.1 million jobs with an average monthly net job growth of 94,000 jobs. The private sector has added employment every single month over the past year. Hourly wages were up 3 cents an hour from the prior month and up 1.8 percent over the year. Employment gains occurred in leisure and hospitality, wholesale and retail trade, temporary work, manufacturing and health care.

But not every sector in the economy added jobs. Construction continued to contract (-16,000 jobs), and local government employment decreased by 20,000 with over 7,000 teachers laid off in the month of December. As states and local governments continue to struggle with balancing their budgets and stimulus support dries up, these job losses are sure to accelerate. While it is good news seeing positive job numbers in the December report, we need to add around 120,000 jobs every month just to keep pace with the growth of the working-age population, let alone make a serious dent in the pool of 14.5 million unemployed workers.

The official unemployment rate gives us an indication of the fraction of workers out of work who have actively looked for work in the last four weeks.  But this does not represent a complete picture of employment insecurity and economic loss in the economy. The BLS report also includes measures on the number of workers who are involuntarily working part time because their employers have cut back hours or because they can only find part time work but need a full time job.  In December 2010, 8.9 million workers were caught in this reduced work situation and another 1.3 million workers have simply given up looking for work in their area because of lack of job opportunities. As a result almost one in seven workers in the economy is underemployed or out of work.

Ongoing weakness in job growth, combined with the fact that there are more than four unemployed workers for every job vacancy, help explain why 44.3 percent of those out of work have been out of work for more than six months. In fact the share of the labor force in long-term unemployment has increased from 0.9 percent in November 2007 to 4.2 percent in December 2010, well above the previous postwar peak of 2.6 percent in June 1983.  Approximately 10 percent of workers out of work and still looking for work have been in that state for more than two  years. The Bureau of Labor Statistics recently announced that it will be updating their reporting on duration of unemployment spells given this unprecedented increase in long term unemployment in the U.S. They will now collect data on the fraction of unemployed up to five years out of work rather than top coding this at two years.  Note these figures do not include discouraged workers - those individuals who have given up looking for work but would still like to work.

As summarized in a presentation on January 6, 2010 at the annual meetings of the Labor and Employment Relations Association meetings by Till van Wachter of Columbia University,  the consequences of such a high fraction of workers out of work for so long include a persistent drop of wages on average from 15 to 20 percent even 10 years after losing a job. There are even larger wage losses for those with less schooling.  Unemployment is also associated with a 50 percent to 100 percent increase in mortality the year following job loss and a 10-15 percent increase in mortality rates for the next 20 years.  Researchers have found that there is an increase in the number of workers who end up moving onto disability after a lengthy spell of unemployment as they become increasingly discourage about their job prospects and their health worsens. Finally, there is even an intergenerational impact on children in terms of poorer schooling outcomes. 

This is why I conclude that the job engine is traveling at 20 mph when it needs to going at 60 mph.  To start to make a significant dent in unemployment we need to see monthly job growth numbers of 300,000 or more month after month.  In addition, we need to ensure that those out of work for significantly long periods of time are provided the job-search assistance and training they need to get them back into the labor market once employers start hiring more robustly.  How we do this best is something researchers in this network have much to contribute to.

For those interested in more demographic details on December’s employment situation, here are some breakdowns by demographic groups:

In December 2010 the unemployment rate was 25.4 percent for teens (16-19 years of age); 15.8 percent among black workers; 13 percent among Hispanic workers; and 8.5 percent among white workers (all seasonally adjusted percentages). For all of these groups their unemployment rates are lower than a year ago with the exception of Hispanic workers whose unemployment rate is up from 12.8 percent in December 2009.  The unemployment rate for men was 9.4 percent in December down from 10.2 percent a year ago, and for women their rate was 8.1 percent down from 8.2 percent a year ago. For workers age 25 or older, unemployment reached 15.3 percent for those without a high school degrees, 9.8 percent for just high school educated workers, 8.1 percent for those with some college and 4.8 percent for those with a college degree. All of these rates are lower than a year ago with the exception of those with less than high school whose rate is unchanged.