US Jobless Rate Distorts True Picture of the Declining Labor Market
By Chico Harlan
Washington Post
July 2 at 7:06 PM
At this point in its long recovery, the U.S. economy has plenty of jobs and few of the fruits that were expected to come with them.
The nation added a solid 223,000 jobs in June, according to government data released Thursday, but the labor market was again held back by its most persistent problems: flat wages and a fresh decline in the size of the nation’s workforce.
The unemployment rate fell to 5.3 percent, the lowest mark in seven years, but only because 400,000 fewer Americans in June were actively looking for work. Only months ago, economists had figured that an unemployment rate approaching 5 percent would all but announce a return to full economic health.
The latest jobs data from the Department of Labor clouds the picture about the direction of the U.S. economy at a time of fresh global volatility, the result of high-wire negotiations between a near-bankrupt Greece and its international creditors. Although the United States faces only modest risk from the chaos across the Atlantic, its own economy is threatening to stall out on the last steps of a long, fitful recovery.
Despite nearly two years of steady hiring, the United States still has not hit the virtuous level at which potential workers leave the sidelines, employers compete for hires and wages rise as a result. In months such as June — when the number on the sidelines swells — the path toward tighter employment and larger paychecks only becomes trickier.
Economists have long expected a slow decline in the labor-force participation rate — the share of people holding jobs or seeking them — as baby boomers hit retirement age. But the dip over the past seven years has been sharper than anticipated; younger people, too, are dropping out of the workforce.
Some stay home because of mounting child-care costs, others to take care of elderly parents. Some economists place partial blame on automation, saying that traditional blue-collar workers have a harder time finding manufacturing jobs. There could also be a lingering pessimism among potential workers about their prospects should they begin applying for jobs.
“As good as these hiring numbers are, they aren’t good enough,” said Bill Spriggs, chief economist at the AFL-CIO. “Employers are still able to find people at prevailing wages.”
At its meeting in June, the Federal Reserve said it expected that wages would rise as the labor market gets closer to a full recovery, which it now defines as an unemployment rate of between 5.0 and 5.2 percent. Over the past few years, the Fed’s estimate of what constitutes a healthy job market has changed. In 2012, some Fed officials thought full employment could occur with the jobless figure as high as 6 percent, a milestone the economy has long since blown past without an accompanying increase in wages.
“I keep expecting wages to tick up, and yet they have remained totally flat,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “If you had told me a few years ago that we’d be at 5.3 percent in June of 2015, I’d have said, ‘Well, it took a long time, but at least we’re at full employment with all the benefits that portends.’ ”
Some economists and other experts cautioned that the labor force participation numbers from June could be muddled by complex calculations that the government uses to smooth out seasonal fluctuations. Normally, in June, the workforce swells with college graduates and summer workers; the Department of Labor tries to model underlying trends, but that modeling is harder in months with such churn.
Labor Secretary Thomas Perez said Thursday in a phone interview that he suspected June’s numbers were an “aberration, as opposed to a more troubling trend.”
Still, Perez said the labor market still has a “significant amount of slack.”
“We’re not at full employment by any stretch,” he said. “The best way to lift wages is to have tighter labor markets. We’ve had the strongest two-year job growth since the Clinton admin. The challenge for us is, we’re digging out of a much deeper hole.”
Last month, wages did not budge, and the labor-force shrinkage more than offset a major increase in May. The labor-force participation rate fell to 62.6 percent, the lowest point since 1977, when women were still pushing into the workplace. The prime age participation rate, counting workers between 25 and 54, stands at 80.8 percent, compared with 83.1 percent seven years ago.
“There is no way to read a positive on a decline in labor-force participation,” said Mark Hamrick, an economic analyst for Bankrate.com, a personal finance Web site. “You cannot construct a scenario where you conclude that things are going so well that people opted out of the workforce.”
Still, the nation is in better shape than at the start of the year — when winter weather and a strong dollar dragged down growth — or earlier in the recovery. The auto industry is thriving, Americans are reaping the benefits of lower gas prices, and consumer spending is speeding up. Meantime, select cities and states have enacted minimum-wage increases, and President Obama has proposed a more generous policy on overtime pay.
Speaking Thursday at the University of Wisconsin-La Crosse, Obama said the nation is “moving forward” economically, although there is more work to do.
With the year half over, the nation is on pace to add 2.5 million jobs this year as opposed to 3.1 million in 2014.
Chico Harlan covers personal economics as part of The Post's financial team.
Washington Post
July 2 at 7:06 PM
At this point in its long recovery, the U.S. economy has plenty of jobs and few of the fruits that were expected to come with them.
The nation added a solid 223,000 jobs in June, according to government data released Thursday, but the labor market was again held back by its most persistent problems: flat wages and a fresh decline in the size of the nation’s workforce.
The unemployment rate fell to 5.3 percent, the lowest mark in seven years, but only because 400,000 fewer Americans in June were actively looking for work. Only months ago, economists had figured that an unemployment rate approaching 5 percent would all but announce a return to full economic health.
The latest jobs data from the Department of Labor clouds the picture about the direction of the U.S. economy at a time of fresh global volatility, the result of high-wire negotiations between a near-bankrupt Greece and its international creditors. Although the United States faces only modest risk from the chaos across the Atlantic, its own economy is threatening to stall out on the last steps of a long, fitful recovery.
Despite nearly two years of steady hiring, the United States still has not hit the virtuous level at which potential workers leave the sidelines, employers compete for hires and wages rise as a result. In months such as June — when the number on the sidelines swells — the path toward tighter employment and larger paychecks only becomes trickier.
Economists have long expected a slow decline in the labor-force participation rate — the share of people holding jobs or seeking them — as baby boomers hit retirement age. But the dip over the past seven years has been sharper than anticipated; younger people, too, are dropping out of the workforce.
Some stay home because of mounting child-care costs, others to take care of elderly parents. Some economists place partial blame on automation, saying that traditional blue-collar workers have a harder time finding manufacturing jobs. There could also be a lingering pessimism among potential workers about their prospects should they begin applying for jobs.
“As good as these hiring numbers are, they aren’t good enough,” said Bill Spriggs, chief economist at the AFL-CIO. “Employers are still able to find people at prevailing wages.”
At its meeting in June, the Federal Reserve said it expected that wages would rise as the labor market gets closer to a full recovery, which it now defines as an unemployment rate of between 5.0 and 5.2 percent. Over the past few years, the Fed’s estimate of what constitutes a healthy job market has changed. In 2012, some Fed officials thought full employment could occur with the jobless figure as high as 6 percent, a milestone the economy has long since blown past without an accompanying increase in wages.
“I keep expecting wages to tick up, and yet they have remained totally flat,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. “If you had told me a few years ago that we’d be at 5.3 percent in June of 2015, I’d have said, ‘Well, it took a long time, but at least we’re at full employment with all the benefits that portends.’ ”
Some economists and other experts cautioned that the labor force participation numbers from June could be muddled by complex calculations that the government uses to smooth out seasonal fluctuations. Normally, in June, the workforce swells with college graduates and summer workers; the Department of Labor tries to model underlying trends, but that modeling is harder in months with such churn.
Labor Secretary Thomas Perez said Thursday in a phone interview that he suspected June’s numbers were an “aberration, as opposed to a more troubling trend.”
Still, Perez said the labor market still has a “significant amount of slack.”
“We’re not at full employment by any stretch,” he said. “The best way to lift wages is to have tighter labor markets. We’ve had the strongest two-year job growth since the Clinton admin. The challenge for us is, we’re digging out of a much deeper hole.”
Last month, wages did not budge, and the labor-force shrinkage more than offset a major increase in May. The labor-force participation rate fell to 62.6 percent, the lowest point since 1977, when women were still pushing into the workplace. The prime age participation rate, counting workers between 25 and 54, stands at 80.8 percent, compared with 83.1 percent seven years ago.
“There is no way to read a positive on a decline in labor-force participation,” said Mark Hamrick, an economic analyst for Bankrate.com, a personal finance Web site. “You cannot construct a scenario where you conclude that things are going so well that people opted out of the workforce.”
Still, the nation is in better shape than at the start of the year — when winter weather and a strong dollar dragged down growth — or earlier in the recovery. The auto industry is thriving, Americans are reaping the benefits of lower gas prices, and consumer spending is speeding up. Meantime, select cities and states have enacted minimum-wage increases, and President Obama has proposed a more generous policy on overtime pay.
Speaking Thursday at the University of Wisconsin-La Crosse, Obama said the nation is “moving forward” economically, although there is more work to do.
With the year half over, the nation is on pace to add 2.5 million jobs this year as opposed to 3.1 million in 2014.
Chico Harlan covers personal economics as part of The Post's financial team.
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