U.S. Labor: A Slow-Working Recovery

The pace of improvement is nowhere near as rapid as in past rebounds. Here’s a look behind the numbers.

Recent reports portray a labor market that is tepid at best. Earlier this year, when for some months employment grew faster than had been expected, hope rose in some circles of a rebound. But now the plodding pace of the jobs recovery seems to have returned. That fact is evident in all the detail provided monthly by the Department of Labor. Though little if anything in these reports points to decline or recession, the picture confirms in yet another way that the economy's historically slow pace of recovery remains in place.

The latest Labor Department report tells among other things that payrolls, nationally, grew by only 142,000 in September, a mere 1.2% annual rate of increase.1 The department revised the previous month's increase down, to an even slower rate of 136,000. These are disappointing figures next to the 223,000 rate of jobs growth in July and the 220,000 rate averaged during the prior six months. To be sure, August and September suffered particularly from cutbacks in the oil industry, which shed 21,000 jobs during these two months in response to the drop in oil prices, and in manufacturing, which has lost 27,000 jobs during this time in large part because of the adverse effect on exports from the dollar's rise on foreign exchange markets. But if the reasons for the slowdown are evident, it also should be clear that these adverse effects are likely to linger for some time to come.

Though the relative strength of jobs creation earlier in the year raised hopes that the recovery might regain the traction of past expansions, even these stronger reports were substandard by such comparisons. The fastest jobs growth recorded during that time indicated only a 1.9% annual rate of increase. By contrast, the recoveries of the mid-1980s and mid-1990s averaged a 2.7% annual rate of jobs creation. To be sure, the recent brief period of strength did exceed the pace of recovery earlier in this century, but this is hardly a favorable comparison. That recovery, after all, came off a very shallow recession that saw only a 0.8% annual rate of jobs loss. By contrast, this recovery, coming off the Great Recession during which payrolls shrank at a 5.9% annual rate, should have been much stronger. Given that it is weaker on average, and only marginally stronger at its most robust point, explains well why it took an unprecedented (since the Great Depression) six years and three months of recovery to reach pre-recession rates of payroll employment.

Unemployment Rate(s)
A look behind the seemingly strong unemployment rate also shows that the labor market is far from robust by historical standards, or by almost any standards. To be sure, the headline unemployment rate—the number of unemployed stated as a percentage of the workforce—has dropped to levels that look much like past times. The 5.1% reported for September is a vast improvement over the high of 10.0% touched in late 2009. It does not even look bad next to the 4.4% reported before the Great Recession and the 3.9% reported at the cyclical highs of 2000. It is better than any rate recorded in the 1980s, the 1990s, and even prior decades. But these seemingly favorable comparisons are misleading on several accounts.

For one, a lower proportion of Americans participate in the workforce than previously. Only 62.4% of the civilian population over the age of 16 were either working or seeking work in September, actually down a little from 62.7% doing so at this time last year, and way down from the 66.1% doing so just prior to the Great Recession or the 67.0% at the turn of the century, or in just about every other time period during the last 40 years. It is true that a greater portion of the population is at retirement age now than in those past periods. As these people cease work, the statistical participation rate will fall. But if demographics of this sort were the only factor operating in this environment, the steep decline of recent years would have been more gradual. That it has been far from gradual suggests that something else is happening, that large numbers of people have become so frustrated looking for work that they have given up the search. Since the statistics do not count these frustrated job seekers as unemployed, the headline unemployment rate looks better than it otherwise might.

If these people were to return to the search, the headline unemployment rate would rise considerably. Since there is no way in the statistics to disentangle the effects of retirement from frustration, a precise calculation remains elusive. One indication, however, emerges from an alternative measure of unemployment calculated by the Labor Department, the so-called U-6 measure. It gauges as a percent of the workforce all those unemployed plus those employed part-time for economic reasons plus those who, in the words of the department, are "marginally attached to the labor force." Of course, those who have given up entirely still do not get counted, but this offers more insight into the falling participation rate than the headline unemployment figure. As of September, this group stood at 10.0% of the workforce, well down from highs of almost 17% recorded in the midst of the Great Recession, but still well up from the 8.0% recorded in 2006 or the 7.0% recorded at the turn of the century. Unfortunately, these figures do not go back much farther, but the existence of a larger number of frustrated jobseekers is evident nonetheless.

A look at the proportion of workers doing part-time work reinforces this picture of an improved but hardly robust jobs market. As of this past September, the Labor Department puts those in part-time work at 18.1% of all those employed. To be sure, that figure is well down from the 19.9% recorded in the recession year, 2009, or the 19.3% recorded earlier in this recovery, but it is otherwise a higher percentage than almost any time during the past 40 years. The only time it was worse, in fact, was in the midst of the relatively severe recession of the early 1980s, when it hit 18.5%. Otherwise, even in the recessions of 1992 and 2002, the proportion involved in part-time work was lower. In both instances, the worst was 17.5%, well below today's level. There is no way to make a neat calculation from these comparisons to a true unemployment rate or even a participation rate apart from the disproportionate number of retirees, but the implication of less than robust health is apparent nonetheless.

Drawing the Threads Together
The Labor Department publishes a remarkable array of statistics each month. This piece summarizes just a sample. If it went on for pages more, looking into all the detail, it would paint a richer picture, but nothing substantively different from the present sketch. Things have improved over this recovery, but at a slower pace and much less completely than in past recoveries. Recent figures have reestablished the plodding pace already so much a part of the picture of the years since 2009. If recession and backsliding are highly unlikely, so is a breakout from this otherwise disappointing pattern.

© Lord Abbett

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