Unemployment’s slow drip: Top economists on the 2013 jobs record

BY Paul Solman  January 10, 2014 at 6:13 PM EST

Job fair; Matthew Staver/Bloomberg via Getty ImagesThe unemployment rate in December 2012 was 7.9 percent. A year later, it’s at 6.7 percent. But the employment picture, top economists agree, is not so simple. Photo courtesy of Matthew Staver/Bloomberg via Getty Images.

The release of December’s job report prompts us to look back at the year in unemployment. Earlier in 2013, a partial government shutdown delayed this fall’s Bureau of Labor Statistics reports. And for much of the year, each month’s release sparked speculation about whether the numbers would be positive enough for the Federal Reserve to begin tapering their monetary stimulus program. At their December meeting, they announced tapering would begin in January 2014, a decision based, in part, on what they judged to be the recovering health of the labor market. November’s unemployment rate showed improvement, dipping to its lowest point in five years, 7 percent. And 200,000 or more jobs were added to the economy for the second month in a row.

December’s unemployment rate dropped even lower, to 6.7 percent, but with only 74,000 jobs added.

Economists often talk about how one month’s data cannot be judged in a vacuum. Month-to-month revisions change the headline numbers, and, as we see this month and saw after the government shutdown, the two different surveys that produce the unemployment rate and the payroll numbers sometimes tell very different stories. To take a longer view of this month’s data and illuminate trends throughout the year, we asked several of the economists and labor-market-watchers with whom we’ve spoken about unemployment on the broadcast in 2013 to weigh in on the final report of the year.

First, we hear from Brandeis’ Lisa Lynch, a NewsHour regular and former Labor Department economist, who appears on Friday’s show and who last spoke with us about August’s report. Back then, unemployment was pegged at 7.3 percent — later revised to 7.2.

Lisa Lynch: In today’s employment report from the Bureau of Labor Statistics, one might mistakenly draw the conclusion that 2013 was finally the year of marked improvement with respect to unemployment. The December unemployment rate fell to 6.7 percent, down from 7.9 percent a year earlier. In December 2013, there were a total of 10.4 million unemployed workers, 1.9 million less than a year ago.

Disappointingly, not all of this decrease in the unemployment rate came about because of people moving into employment. A large part of the decrease was driven by people dropping out of the labor market completely. Over the past year, the labor force participation rate (the number of people employed plus unemployed, as a percentage of the population 16 years of age and older) fell from 63.6 percent to 62.8 percent. If the labor force participation rate had not fallen at all over the past year, we would have had 2 million more people in the labor force today.
Some of that decrease in labor force participation may include more young people delaying entry into the labor market and staying on in school. Some of the decrease reflects the fact that with an aging population, a greater share of the working-age population is over the age of 65 and is retiring.

But there is a worrying trend in the labor force participation rate for “prime-aged” (those 25-54 years of age) workers. This rate fell from 81.3 to 80.7 percent over the past year and is well below its pre-recession rate of 83.1 percent. Hundreds of thousands of prime-aged workers have dropped out of the labor market in spite of job growth and a falling unemployment rate. Many of these workers have become discouraged; they want and are available to work, and have looked for work over the past 12 months, but have currently stopped looking because they believe no jobs are available or there are none for which they are qualified. Many of these workers have a high school degree or less.

The other area of concern in today’s employment report has to do with the number of unemployed workers who have been out of work for six months or more. Almost 4 million workers are in this state and are now facing the dual challenge of bleak employment prospects and their unemployment benefits expiring.

The Economic Policy Institute’s Heidi Shierholz, with whom we spoke about July’s numbers, contextualizes this month’s report in light of average monthly job growth and points out that the unemployment rate would be much higher if so-called “missing workers” were included.

Heidi Shierholz: The jobs report released this morning marks six years since the official start of the Great Recession in December 2007 and four-and-a-half years since its official end in June 2009. Unfortunately, the report shows a very weak labor market, and the continued fleeing of workers from the labor force because job opportunities are weak. The unemployment rate dropped from 7.0 percent to 6.7 percent in December, but as has been a constant refrain throughout this recovery, the improvement was not for “good” reasons.

The share of the working-age population with a job did not increase in December, and the labor force participation rate dropped back down to its lowest point in 35 years. The number of “missing workers” increased from 5.6 million to 6 million. (Missing workers are jobless workers who are not actively seeking work but who would be either employed or looking for work if job opportunities were stronger, after taking into account long-run demographic trends.) If these workers were in the labor force looking for work, the unemployment rate would be 10.2 percent instead of 6.7 percent.

December’s job growth of 74,000 brought the average monthly growth rate in 2013 to 182,000, just under the average monthly growth rate of 2012, which was 183,000. In recent weeks, much has been made of the supposed acceleration in labor market strength, but it doesn’t appear to be happening. At the average growth rate of the last three months (172,000 jobs per month), it will take nearly six more years for the labor market to regain pre-recession labor market conditions.

With job opportunities so weak for so long, workers have gotten stuck in unemployment for record lengths of time. Last month, the extensions of unemployment insurance benefits were allowed to expire — an unprecedented move given the weak state of the labor market. The share of the workforce that is long-term unemployed (i.e., jobless for more than six months) is nearly twice as high today as it was in any other period when we allowed an extended benefits program to expire following earlier recessions. This is no time for Congress to turn its back on the long-term unemployed.

Here’s a visual from EPI of those “missing” workers Shierholz and Lynch describe:

 

Co-director of the Center for Economic and Policy Research Dean Baker is a frequent contributor to the Making Sense Business Desk, and he spoke with Paul about the October jobs numbers following the shutdown. Most recently on the Business Desk, in “Why People with Jobs Should Want Other People to Have Them Too,” Baker argued that fuller employment is better for the entire economy, and not just for the unemployed. Baker echoes Shierholz’s concerns about missing workers and breaks the labor force participation rate down demographically.

Dean Baker: The drop was almost entirely due to people leaving the labor force as the number of people reported employed in December only rose by 143,000, just enough to
keep the employment-to-population ratio constant.

Blacks disproportionately left the labor market, with the labor force participation rate for African Americans dropping by 0.3 percentage points to 60.2 percent, the lowest rate since December of 1977. The rate for African American men fell 0.7 pp to 65.6 percent, the lowest on record.

The data on the establishment [payroll] side was not any brighter with the survey reporting an increase of just 74,000 jobs. Some of this weakness was due to unusually slow growth in health care and restaurant employment. This is likely an anomaly that will be reversed in future
months.

However, there was also a decline in the index of average weekly hours. This suggests that the economy may be weaker than some of the recent optimistic accounts indicated.

For October’s report, we also spoke with the American Enterprise Institute’s Michael Strain. As Congress debates the extension of unemployment benefits, Strain has been one of the conservatives voices urging them to renew benefits.

 

Michael Strain: Unemployment in 2013 looks good on the surface. The unemployment rate fell by over a point last year, and will almost surely continue to fall in 2014. That indicator gets a great deal of attention, but going beneath the surface and digging deeper into the labor market statistics tells a different story. …

A falling unemployment rate is good if the unemployed are transitioning into employment. A falling unemployment rate is not good if the unemployed are losing hope and giving up their job search entirely. Getting more people — especially the long-term unemployed — into jobs should be the major focus of federal economic policy in 2014. Of course, that was true for 2013, too.

The Heritage Foundation’s James Sherk spoke with Paul about November’s jobs report. 2013 was a bad year for the labor market, underscored by the employment rate of those prime-aged workers. But 2013 could have been worse, he explains.

James Sherk: The job market had another anemic year in 2013. Unemployment dropped by 1.2 percentage points, but only because millions of Americans stopped looking for work. The labor force participation rate continued to decline and hit its lowest level since 1978. The proportion of the adult population with jobs remained unchanged. Some analysts blame falling labor force participation on retiring baby boomers, but the same pattern holds when looking at prime-aged workers (25-54 year olds). Over the year the employment rate of this group increased by just 0.2 percentage points even as their unemployment rate dropped by almost a full percentage point. The economic recovery remains sluggish.

On the positive side, the labor market did not get any worse in 2013. Many Keynesian economists predicted that fiscal “austerity” — particularly the sequester — would sharply reduce economic growth and threaten another recession. That did not happen.

Former Fed economist Catherine Mann, now at Brandeis University International Business School, was our window into the Fed last month as we previewed their decision to taper. In a series of extended transcripts, she explained why the Fed’s low interest rates are sending dollars abroad and how the Fed’s trillions end up back at deposit at the Fed. Here she explains how December’s unemployment rate surprised economists after a relatively strong report from private payroll reporter, ADP. (We’ve explored the unreliability of ADP reports for predicting America’s unemployment picture before on Making Sense).

Catherine Mann: There were two surprises with this report. Discrepancy between ADP and BLS reports and the drop in the unemployment rate.

First: The big miss between the ADP at 238,000 and the BLS at 87,000 (business-added jobs). Although the two reports often differ, this is a very large miss between these two indicators of job strength. The two categories where the discrepancies are largest are construction: ADP was positive 48 and BLS was negative 17 — entirely on account of drops in employment in non-residential specialty trades, perhaps coming from shale gas activities. And the other discrepancy is in services-providing jobs: ADP at 170 and BLS at 90 — the discrepancies may come from BLS recording drops in some business/professional services like accounting and entertainment, and health (which is very rare).

Second: the drop in the unemployment rate from 7.0 to 6.7 percent. Looking underneath this number, however, reveals big differences for youth versus mature workers and men versus women. For mature men (25 and older) the unemployment rate declined significantly 6.1 to 5.7 percent whereas for mature women (25 and older) the decline was more modest (5.6 to 5.5 percent). There were bigger differences for young workers: for men 18-19 unemployment fell 22.7 to 18.9 percent but rose for young women, 16 to 17.6 percent.


This entry is cross-posted on the Rundown — NewsHour’s blog of news and insight.