Economist's View

Economy Adds 157,000 Jobs in July, Little Evidence of Pick-up in Wage Growth

Dean Baker:

Economy Adds 157,000 Jobs in July, Little Evidence of Pick-up in Wage Growth: Unemployment rates for workers without a high school degree hit a record low as less-educated workers continue to be biggest job gainers in recovery.

The Bureau of Labor Statistics (BLS) reported the economy added 157,000 jobs in July. With upward revisions to the data from the prior two months, the average gain over the last three months was 224,000. The unemployment rate edged down to 3.9 percent as most of the rise in unemployment in June, which was due to increased labor force participation, was reversed. The employment-to-population (EPOP) ratio rose to 60.5 percent, a new high for the recovery.

In spite of the healthy pace of job growth and the low unemployment rate, there continues to be little evidence of accelerating wage growth. Over the last year, the average hourly wage has risen by 2.7 percent. There is a very small uptick to 2.87 percent if we annualize the rate of wage growth for the last three months (May, June, and July) compared with the prior three months (February, March, and April).

Interestingly, there was a modest fall in hours in July, which led to a decline in the index of aggregate weekly hours from 110.0 to 109.8. As a result, the average weekly wage actually declined slightly in July. ...

In spite of the complaints about labor shortages in sectors such as manufacturing and trucking, we continue to see little evidence in wage growth. The average hourly wage for production workers in manufacturing has risen by just 2.7 percent over the last year, while in the larger trucking and warehousing category it has risen less than 2.5 percent.

The story on the household side was overwhelmingly positive. In addition to the rise in EPOPs, the number of involuntary part-time workers fell by 176,000 to a new low for the recovery. The percentage of unemployment due to voluntary quits rose to 13.5 percent, largely reversing a drop in June. The unemployment rate for Hispanic workers fell to 4.5 percent, a new record low.

Looking at 10 year age spans for prime age workers, EPOPs have been rising for both men and women, although only women between the ages of 25 and 34 have recovered to their prerecession peak EPOP. Even this group is still slightly below its 2000 peaks. The trends in EPOPs suggests there is further room for employment to expand.

The unemployment rate for workers without a high school degree fell to 5.1 percent in July, the lowest rate since the BLS adjusted its education measures in 1992. This is 1.9 percentage points below its year-ago rate.

Less-educated workers have been the big gainers in terms of employment in the last few years of the recovery. While the unemployment rate for workers with less than a high school degree is well below the prerecession level and even its 2000 low, the unemployment rate for workers with a college degree, at 2.2 percent, is still above its prerecession low of 1.8 percent and well above its 2000 low of 1.5 percent.

Workers with just a high school degree also seem to be doing relatively better, with a 4.0 percent unemployment rate matching the prerecession low (it had been 3.9 percent in May), although still above the 3.2 percent low hit in 1999. The idea that the labor market is becoming increasingly tilted to favor more educated workers does not appear to be supported by the employment data.  

This is, again, a solid jobs report in terms of job creation and lower unemployment. However, wage growth continues to be a problem, with wages barely outpacing inflation.

Oh, What a Stupid Trade War

Paul Krugman:

Oh, What a Stupid Trade War (Very Slightly Wonkish), by Paul Krugman, NY Times: So, the trade war is on. And what a stupid trade war it is. …

The official – and legal – justification for the steel and aluminum tariffs is national security. That’s an obviously fraudulent rationale... But Trump and co. presumably don’t care about telling lies with regard to economic policy... They would see it as all fair game if the policy delivered job gains Trump could trumpet. Will it?

OK, here’s the point where being a card-carrying economist gets me into a bit of trouble. The proper answer about the job-creation or -destruction effect of a trade policy – any trade policy, no matter how well or badly conceived – is basically zero. ….Why? The Fed... Even if tariffs were expansionary, that would just make the Fed raise rates faster, which would in turn crowd out jobs in other industries...

But I think this is a case where macroeconomics, even though I believe it’s right, gets in the way of useful discussion. We do want to know whether the Trump trade war ... would add or subtract jobs holding monetary policy constant, even though we know monetary policy won’t be constant.

And the answer, almost surely, is that this trade war will actually be a job-killer, not a job-creator, for two reasons.

First, Trump is putting tariffs on intermediate goods…, some of which themselves have to compete on world markets. Most obviously, cars and other durable manufactured goods will become more expensive to produce, which means that we’ll sell less of them; and whatever gains there are in primary metals employment will be offset by job losses in downstream industries.

Playing with the numbers, it seems highly likely that even this direct effect is a net negative for employment.

Second, other countries will retaliate against U.S. exports, costing jobs in everything from motorcycles to sausages. …

Finally – and I think this is really important – we’re dealing with real countries here, mainly democracies. Real countries have real politics; they have pride; and their electorates really, really don’t like Trump. This means that even if their leaders might want to make concessions, their voters probably won’t allow it. ...

So this is a remarkably stupid economic conflict to get into. And the situation in this trade war is likely to develop not necessarily to Trump’s advantage.

Jobs Report Gives Fed Cover To Retain Gradual Rate Path

Tim Duy:

Jobs Report Gives Fed Cover To Retain Gradual Rate Path: The jobs report gives the Fed cover to retain a gradual rate path. To be sure, the rapid pace of job growth will leave them nervous about an unsustainable pace of growth. But the flat unemployment rate remains consistent with their forecasts. In addition, low wage growth indicates the economy has not pushed past full employment. If inflation remains constrained, the Fed would be pretty much on target for this year. That suggests the three-hike scenario should remain in play. But increased confidence in the outlook and risk management concerns will push up enough “dots” in the next Summary of Economic projections toward four hikes for this year. ...continued here...

Economy Adds 200,000 Jobs in January

Dean Baker:

Economy Adds 200,000 Jobs in January, Black Unemployment Jumps 0.9 Percentage Points, CEPR: The Bureau of Labor Statistics reported that the economy added 200,000 jobs in January. With modest downward revisions to the prior two months data, this brings average growth over the last three months to 192,000. This is slightly more rapid than the 176,000 average over the last year. The picture on the household side was mixed, with the both the unemployment rate and employment-to-population ratios (EPOPs) remaining unchanged.

However, while the unemployment rate for whites dipped by 0.2 percentage points to 3.5 percent, the black unemployment rate jumped 0.9 percentage points to 7.7 percent, putting it just a hair under the 7.8 percent rate of January, 2017. This was associated with a 0.6 percentage point drop in the employment rate.

This is disappointing since the 6.8 percent rate in December was the lowest on record. (The data only go back to 1972.) ... The employment data for blacks are highly erratic and it is likely that much of this change is driven by measurement error, but it is nonetheless discouraging to see this reported jump.

The percentage of unemployment due to voluntary quits, a measure of people’s confidence in their labor market prospects, was unchanged at 10.9 percent. It stood at over 12.0 percent before the recession and peaked at over 15 percent in 2000.

Less-educated workers continue to be the biggest job gainers. ...

One item suggesting slower job growth going forward is a drop in the diffusion indexes, which show the percentage of industries intending to add jobs. The overall index fell from 65.5 to 57.9, while the manufacturing index fell from 60.5 to 53.9.

The story is mixed on the wage side. The overall average hourly wage is up 2.9 percent year-over-year, a modest acceleration from its prior pace. However, the average wage for production and nonsupervisory workers, a group that excludes many higher-paid workers, rose just 2.4 percent over the last year. By industry, the fastest growth appears to be in restaurants, with higher wages driven both by minimum wage increases and a tightening of the labor market. Wage growth in manufacturing, at 1.9 percent, lags the overall average, as does the 2.2 percent growth in retail.

Overall, this is a positive picture of the labor market with the jump in wages being especially good news. However, there are discouraging signs, such as the drop in the diffusion indexes, the small percentage of unemployment due to voluntary quits, and of course, the rise in the black unemployment rate. In addition, there was a 0.2 hour drop in the length of the average workweek. This led to a drop in average weekly pay, despite the higher hourly rate. This is most likely a blip in the data, but one that is worth noting.

Cutback in H-1B Visas Did Not Raise Employment for Natives

From the NBER Digest:

Cutback in H-1B Visas Did Not Raise Employment for Natives, by Steve Maas, NBER Digest: In response to concerns that foreign workers were taking jobs from Americans, especially in high-technology fields, Congress cut the annual quota on new H-1B visas from 195,000 to 65,000, beginning with fiscal year 2004. A study by Anna Maria Mayda, Francesc Ortega, Giovanni Peri, Kevin Shih, and Chad Sparber, based on data for the fiscal years 2002-09, finds that the reduced cap did not increase the hiring of U.S. workers.

In The Effect of the H-1B Quota on Employment and Selection of Foreign-Born Labor (NBER Working Paper No. 23902), the researchers examine data obtained through a Freedom of Information Act request to present the first assessment of the consequences of the cap reduction on various sectors of the skilled labor force.

The H-1B program, which was launched in 1990, has provided foreign-born, college-educated professionals their main entry point into the U.S. market. As much as half the growth in America's college-educated science, technology, engineering and mathematics workforce in subsequent decades can be attributed to H-1B workers.

Since the cap was tightened in 2004, firms hired between 20 and 50 percent fewer new H-1B workers than they might have hired had it remained at 195,000 visas per year. The researchers find, however, that the reduced pool of foreign workers did not lead firms to hire more Americans, and conclude that this suggests "low substitutability between native-born and H-1B workers in the same skill groups." The cap only applies to for-profit companies, not to new employees of educational institutions or nonprofit research institutions.

The researchers also find that the quota reduction resulted in changes to the composition of new visa holders and the companies that hired them. Employment losses were concentrated at the lowest and highest ends of the wage scale, leading H-1B workers to become more concentrated among workers with mid-level skills. "The binding H-1B cap reduced the number of workers who were likely to have been among the most talented and productive foreign individuals seeking U.S. employment." Yet these are just the workers who might have contributed technological advances benefiting the entire economy.

The cap led to an increased concentration of India-born workers in computer-related fields. The paper posits that Indians had a leg up on other foreign workers because of long-established labor networks in the software and semiconductor industries.

On the employer side, the lower cap favored larger firms with greater experience navigating the bureaucracy of the visa program and with in-house legal teams that could handle the paperwork. This proved especially advantageous in fiscal years 2008 and 2009, when demand for visas was so high that the number of applications exceeded the quota level within the first week and the government resorted to a computerized random lottery system to allocate them. Smaller firms simply could not afford to spend money applying for visas when they were not sure whether they would obtain one.

Job Growth Slows Modestly, But Black Unemployment Falls to Record Low

Dean Baker:

Job Growth Slows Modestly, But Black Unemployment Falls to Record Low: The Bureau of Labor Statistics reported slightly weaker than expected job growth in December, with the economy adding 148,000 jobs. There was a modest downward revision to the data for the prior two months, which brought the three-month average to 204,000. The unemployment rate remained unchanged at 4.1 percent for the third consecutive month.

The best news in this report was the drop in the unemployment rate for blacks to 6.8 percent, the lowest since these data were first collected in 1972. The previous low was 7.0 percent in April of 2000. This is consistent with the view that a low unemployment rate disproportionately benefits the most disadvantaged groups. The black unemployment rate averages close to twice the white unemployment rate. This ratio has been reduced somewhat as the labor market tightened. The unemployment rate for whites in December was 3.7 percent.

Healthy job growth has continued to pull more prime-age workers (ages 25 to 54) into the labor market with the employment-to-population ratio (EPOP) edging up to 79.1 percent. This is a new high for the recovery, but it is still more than a full percentage point below its pre-recession level and 2.8 percentage points below the peak high in 2000.

It is worth noting that the EPOPs of varying demographic groups have not followed a predictable pattern since 2000. In the last recovery, women in the 25-to-34 age group showed the sharpest falloff in EPOPs. At present, they are one of the groups closest to recovering their 2000 EPOP. While men in the 25 to 34 grouping now show the sharpest falloff in EPOPs among prime-age workers, their EPOPs pretty much moved with the EPOPs for other prime-age workers in the last recovery. This suggests caution in assuming that changes in these EPOPs are due to supply-side issues as opposed to the strength of the labor market.
In this respect, it is worth noting that less-educated workers continue to be the biggest gainers from the continuing expansion. The EPOP for workers with just a high school degree has risen by 0.6 percentage points over the last year. For workers without a high school degree it has risen by 0.5 percentage points. By contrast, for workers with a college degree it is unchanged.

Other news in the household survey was mixed. All the duration measures of unemployment fell, with the average and median duration hitting new lows for the recovery, albeit still slightly higher than pre-recession levels. On the other hand, the percent of unemployment due to voluntary quits edged down to 10.9 percent. By comparison, it was over 13.7 percent in 2000.

On the payroll side, a disproportionate share of the job growth occurred in the goods-producing sector with construction adding 30,000 jobs and manufacturing adding 25,000 jobs. Employment in the mining and logging sector overall was unchanged, although coal mining lost jobs for the third consecutive month.

Health care added 31,400 jobs and restaurants added 25,100 jobs, both in line with their averages over the last year. The professional and technical services lost 4,700 jobs, the first decline in more than two years. This was driven by a loss of 15,400 jobs in accounting, a decline that is sure to be reversed as a result of the new tax law. The big loser was retail, which lost 20,300 jobs. Employment in the sector is down by 66,500 over the last year or 0.4 percent.

The most troublesome item in this report is the continued weakness of wages. The average hourly wage rose 2.5 percent over the last year, but this may actually be slowing. The annual rate for the last three months compared with the prior three months has been just 1.7 percent.

The weakest wage growth has been in manufacturing, where wages have risen by just 1.6 percent over the last year, and mining and logging, where the increase has been just 0.3 percent. This is consistent with production shifting from higher-paying union sites to lower paying non-union sites. Wages in retail have risen by a weak 2.1 percent, while in accommodation and food services they have risen by 3.6 percent, likely reflecting the impact of higher minimum wages.

On the whole, this is a positive report, but it certainly indicates no basis for concern about the labor market overheating.

Exploring the Job Ladder to High-Productivity Firms

"Less-educated workers are disproportionately likely to move up the job ladder during expansions, but they also slide down during downturns."

This is from Dwyer Gunn at the NBER Digest:

Exploring the Job Ladder to High-Productivity Firms, NBER Digest: Upward movement of workers on a "job ladder" from low-productivity to high-productivity firms is heavily dependent on the business cycle. During booms, net employment at high-productivity firms grows faster than at low-productivity firms, resulting in workers moving up the ladder. During busts, these upward job-to-job changes essentially stop. Net employment flows are instead driven by layoffs, with low-productivity firms losing comparatively more workers than their higher-productivity counterparts.

In Who Moves Up the Job Ladder? (NBER Working Paper No. 23693), John Haltiwanger, Henry Hyatt, and Erika McEntarfer examine demographic patterns in job ladder mobility over the business cycle. Using several datasets from the U.S. Bureau of the Census, they analyze earnings, employment, productivity, and demographic data for 65 percent of the national private sector workforce for the years 1998–2011. Their analysis relies on firm productivity data for a shorter period, 2003–11.

The researchers find that younger workers are disproportionately likely to climb the ladder by moving to more productive firms. Workers under 25, for example, account for only 16 percent of the workforce but 37 percent of the outflows from low-productivity firms and 29 percent of the inflows to high-productivity firms.

Less-educated work­ers also are disproportionately likely to move up the job ladder during expansions. More-educated workers are less likely to enter employment at low-productivity firms in the first place, but once in such firms they are less likely to separate from them. The researchers hypothesize that more-educated workers may be more specialized, and thus less mobile across firms.

The positive rate of job ladder mobility for younger and less-educated workers is not observed during tough economic times. During contractions, younger and less-educated individuals who are unemployed or out of the labor force are less likely to be hired at all. If working, they are less likely to move up the job ladder to more productive firms, and they are more likely to be knocked off the ladder entirely as a result of job loss. Economic slowdowns, while imposing costs throughout the labor market, are particularly harmful to the employment prospects of younger, less-educated workers.

The researchers note that much of the previous research on the consequences of labor market dynamics during a recession has focused on college graduates, and they suggest that more attention should be paid to the long-term effects on less-educated workers. Because mobility up the job ladder plays a particularly important role in the career paths of younger, less-educated workers, labor market frictions may play an important role in explaining wage differentials between them. In particular, the declining fluidity of the labor market, which has been recently noted, may make it more difficult to climb the job ladder.

US Wages: The Short-Term Mystery Resolved

Tim Taylor:

US Wages: The Short-Term Mystery Resolved: The Great Recession ended more than eight years ago, in June 2009. The US unemployment rate declined slowly after that, but it has now been below 5.0% every month for more than two years, since September 2015. Thus, an ongoing mystery for the US economy is: Why haven't wages started to rise more quickly as the labor market conditions improved? Jay Shambaugh, Ryan Nunn, Patrick Liu, and Greg Nantz provide some factual background to address this question in "Thirteen Facts about Wage Growth," written for the Hamilton Project at the Brookings Institution (September 2017). The second part of the report addresses the question: "How Strong Has Wage Growth Been since the Great Recession?"

For me, one surprising insight from the report is that real wage growth--that is, wage growth adjusted for inflation--has actually not been particularly slow during the most recent upswing. The upper panel of this figure shows real wage growth since the early 1980s. The horizontal lines show the growth of wages after each recession. The real wage growth in the last few years is actually higher. The bottom panel shows nominal wage growth, with inflation included. By that measure, wage growth in recent years is lower than after the last few recessions. Thus, I suspect that one reason behind the perception of slow wage growth is that many people are focused on nominal rather than on real wages.

Government statistics offer a lot of ways of measuring wage growth. The graphs above are wage growth for "real average hourly earnings for production and nonsupervisory workers," which is about 100 million of the 150 million workers.

An alternative and broader approach looks what is called the Employment Cost Index, which is based on a National Compensation Survey of employers. To adjust for inflation, I use the measure of inflation called the Personal Consumption Expenditures price index, which is the inflation just for the personal consumption part of the economy that is presumably most relevant to workers. I also use the version of this index that strips out jumps in energy and food prices. This is the measure of the inflation rate that the Federal Reserve actually focuses on.

Economists using these measures were pointing out a couple of years ago that real wages seemed to be on the rise. The blue line shows the annual change in wages and salaries for all civilian workers, using the ECI, while the redline shows the PCE measure of inflation. The gap between the two is the real gain in wages, which you can see started to emerge in 2015.

Not only has the recovery in US real wages been a bit higher than usual for the last few decades, and especially prominent in the last couple of years, but there is good reason to believe that the wage statistics since the Great Recession may be picking up a change in the composition of the workforce that tends to make wage growth look slower. Shambaugh, Nunn, Liu, and Nantz explain (citations and footnotes omitted):

"In normal times, entrants to full-time employment have lower wages than those exiting, which tends to depress measured wage growth. During the Great Recession this effect diminished substantially when an unusual number of low-wage workers exited full-time employment and few were entering. After the Great Recession ended, the recovering economy began to pull workers back into full-time employment from part-time employment ... and nonemployment, while higher-paid, older workers left the labor force. Wage growth in the middle and later parts of the recovery fell short of the growth experienced by continuously employed workers, reflecting both the retirements of relatively high-wage workers and the reentry of workers with relatively low wages. In 2017 the effect of this shifting composition of employment remains large, at more than 1.5 percentage points. If and when growth in full-time employment slows, we can expect this effect to diminish somewhat, providing a boost to measured wage growth."

The baby boomer generation is hitting retirement and leaving the labor force, as relatively highly-paid workers at the end of their careers. New workers entering the labor force, together with low-skilled workers being drawn back into the labor force, tend to have lower wages and salaries. This makes wage growth look low--but what's happening is in part a shift in types of workers.

One other fact from Shambaugh, Nunn, Liu, and Nantz is that wage growth has been strong at the bottom and the top of the wage distribution, but slower in the middle. This figure splits the wage distribution into five quintiles, and shows the wage growth for production and nonsupervisory workers in each.

Taking these factors together, the "mystery" of why wages haven't recovered more strongly since the end of the Great Recession appears to be resolved. However, a bigger mystery remains. Why have wages and salaries for production and nonsupervisory workers done so poorly not in the last few years, but over the last few decades?

There's a long list of potential reasons: slow productivity growth, rising inequality, dislocations from globalization and new technology, a slowdown in the rate of start-up firms, weakness of unions and collective bargaining, less geographic mobility by workers, and others. These factors have been discussed here before, and will be again, but not today. Shambaugh, Nunn, Liu, and Nantz provide some background figures and discussion of these longer-term factors, too.

Job Growth Slows in August

Dean Baker:

Job Growth Slows in August: Weakness in wage growth and drop in prime-age EPOPs shows slack in labor market.

The Bureau of Labor Statistics reported that the economy added 156,000 jobs in August, somewhat less than most economists had expected. This figure, combined with downward revisions of 41,000 to the prior two months data, brought the average over the last three months to 185,000. The household survey also showed some evidence of weakness with the unemployment rate edging up to 4.4 percent and the employment-to-population ratio (EPOP) falling back 0.1 percentage point to 60.1 percent.

Perhaps more noteworthy was a drop of 0.3 percentage points in the EPOP of prime-age (ages 25 to 54) workers to 78.4 percent. The EPOP for both prime-age men and women dropped by 0.3 percentage points. ...

Other data in the household survey were mostly positive. The number of people involuntarily working part-time fell by 27,000, it is now only slightly larger as a share of the workforce than before the recession. The number of people choosing to work part-time increased by 187,000, reaching a new high. This number has increased by more than 2.6 million since the end of the 2013 when the Affordable Care Act took effect. It indicates that many people are taking advantage of the opportunity to get insurance outside of employment and therefore opting to work part-time.

The percentage of people who are unemployed because they quit their jobs increased to 11.3 percent, but this is still 1.2 percentage points below the peak for the recovery reached last November. One peculiar item in the August report was a big drop in the number of people who are multiple job holders, especially among women. This number, which is not seasonally adjusted, is down 0.4 percentage points from its year-ago level for women and now stands at 4.8 percent of employed women. (It is 4.3 percent for employed men.) This could mean that fewer women feel they need to work more than one job, or it could just be an anomaly that will be reversed in future months.

Wage growth continues to be moderate, with the average hourly wage up 2.5 percent over the last year. The annual rate of increase in the average hourly wage, comparing the last three months with the prior three months, is also 2.5 percent. As a result of the weak growth in the hourly wage and a modest decline in the length of the average workweek, average weekly earnings actually fell slightly in the month. ...

On the whole, this is a mixed report. The rate of job growth is respectable but certainly should not raise concerns about being too rapid, especially given continued weakness in wage growth. And the drop in prime-age EPOPs indicates the labor market still has considerable slack.

See also: Calculated Risk, Jared Bernstein.

Fed Watch: Multiple Jobholders Are Not A Weak Spot In The Employment Report

Tim Duy:

Multiple Jobholders Are Not A Weak Spot In The Employment Report, by Tim Duy: Along with every decent employment report comes the efforts to debunk that report. I see that an article from Pedro Nicolaci Da Costa at Business Insider is making the rounds tonight. In it Da Costa directs us to this in particular from Komal Sri-Kumar:

The plight of low-income workers is underlined by yet another statistic. According to BLS numbers, 7.6 million workers held multiple jobs last month, up 2% from 7.4 million in July 2016. The principal reason workers hold more than one position is that no single job provides a sufficient income. In a robust economic recovery, the number of full-time workers should be rising, and the number of workers employed part-time or holding multiple jobs, should decline. The rise in the number of multiple job holders is troubling, and is yet another signal that there is still slack in the labor market. Are we there yet? No, we are still far from full employment.

Let's look at a picture of this one:

Sri-Kumar claims that in a robust economic expansion, the number of multiple job holders should be declining. In other words, multiple job holders should be a countercyclical indicator. But even the most cursory look at the data tells you that the number of multiple job holders is a procyclical indicator. It should rise as the economy gains steam and there is more opportunity for those who need or want second jobs to find such employment.

The trend of multiple job holders is very clearly not a sign of weakness in the economy, but a sign of strength. 

It is also worth noting that as a percentage of the employed, the number of multiple job holders has been in a two decade decline:

Note that the job market of the late 1990's is considered one of the best, yet at the same time the percentage of multiple job holders was rising and high. A decline in the number of multiple job holders, both in absolute and percentage terms, was actually a leading indicator of recession. In other words, if you are concerned about opportunities for those who need or want multiple jobs, you should be hoping these metrics move higher, not lower.

Bottom Line: The rise in the number of multiple job holders is a sign of economic strength, not weakness. Regardless of what the bears might say, the July employment report was solid. Get over it. Worry about the inability of this Administration to deal with a crisis like North Korea instead.

Why These Job Numbers Matter to the Fed

Tim Duy:

Why These Job Numbers Matter to the Fed: Even though the Federal Reserve is poised to start shrinking its $4.5 trillion balance sheet, the outlook for continued rate increases is very much in doubt following the recent slowdown in inflation. That makes the monthly jobs report on Friday even more important than usual as investors and analysts try to figure out whether the central bank will continue to take its cues from labor market strength rather than inflation weakness as it charts a course for monetary policy. ...[Continued at Bloomberg Prophets]...

A Solid Employment Report

Calculated Risk:

A Solid Employment Report: The headline jobs number was above expectations, and there were combined upward revisions to the previous two months. And the unemployment increased slightly.  

Earlier: June Employment Report: 222,000 Jobs, 4.4% Unemployment Rate

In June, the year-over-year change was 2.24 million jobs. This is decent year-over-year job growth.

Note that June has been the strongest month for job growth over the three previous years, followed by July and November. This is the 4th consecutive solid job gain in June:  304 thousand in June 2014, 206 in June 2015, 297 thousand in June 2016, and now 222 thousand in June 2017.   ...

Trump’s Apprenticeships are Based upon a Problem That Doesn’t Exist

I have a new column:

Trump’s Apprenticeships are Based upon a Problem That Doesn’t Exist: Last week the Trump administration announced “a workforce training initiative focused on skill-based apprenticeship education” with a goal of creating one million apprenticeships over the next two years. The motivation behind the initiative was explained by Ivanka Trump: “The reality is that there are still Americans seeking employment despite low unemployment rates, and companies are struggling to fill vacancies for positions that require varying levels of skills and training. So the Trump administration is committed to working very closely to close the skills gap."

But is a “skills gap” really a problem in the US? ...

Job Growth Slows Sharply in May as Unemployment Hits New Low

Dean Baker:

Job Growth Slows Sharply in May as Unemployment Hits New Low: The weaker job growth in recent months means that we will see a big uptick in productivity in the second quarter.

The unemployment rate fell to 4.3 percent in May, a new low for the recovery and the lowest level since 2001. However, this decline in the unemployment rate was the result of people leaving the labor market, as the number of people reported as employed in the household survey actually fell, with the overall employment-to-population ratio (EPOP) dropping from 60.2 percent in April to 60.0 percent in May.

The establishment survey showed further evidence of a weakening labor market as the pace of job growth slowed in May to 138,000. There were also substantial downward revisions to the prior two months’ job growth numbers, which brought the average for the last three months to just 121,000. ...

The situation in the household survey was mixed. The drop in employment was among prime-age workers, with the EPOP falling from 78.6 percent to 78.4 percent, with both men and women seeing small declines. On the plus side, the unemployment rate for African American men over 20 fell 0.8 percentage points to 6.5 percent, the lowest level since April of 2000. However this was entirely due to men dropping out of the labor force as employment actually fell.

All the duration measures of unemployment rose modestly in May. The quit rate rose modestly to 11.7 percent, which is still below pre-recession peaks and well below the peaks hit in 2000. Involuntary part-time employment fell for the fourth consecutive month to a new low for the recovery. It is now only slightly larger relative to the size of the labor force than before the recession. Voluntary part-time rose by 320,000 but is still slightly below the peak hit in November.

The summary data continue to show little evidence for the story that the labor market is increasingly benefiting the most educated workers. While the unemployment rate for college educated workers edged down by 0.1 percentage point, so did the EPOP. It now stands 0.4 percentage points below its year-ago level. In terms of EPOPs, those with high school degrees and less than high school were the biggest gainers in the last year.

There is certainly little evidence in this report that the labor market is overheating or is likely to do so any time in the foreseeable future.

See also Bill McBride at Calculated Risk (here too):

A Disappointing Employment ReportThe headline jobs number was below expectations, and there were combined downward revisions to the previous two months.   Is this is slowdown in hiring a short term issue, part of the normal business cycle, or due to a Trump Slump? My view is this slowdown in hiring is mostly part of the normal business cycle (my expectation was job growth would slow further this year). There was still some good news - especially with the unemployment rate falling to 4.3% (lowest since 2001), and U-6 falling to 8.4% (lowest since 2007).  But overall this was a disappointing report. ...

Prime-Age Employment Rate Hits New High for Recovery

Dean Baker:

Prime-Age Employment Rate Hits New High for Recovery: College grads see little gain from last year of employment growth.

The overall unemployment rate fell to 4.4 percent in April, tying the lowest level reached since May of 2001 as the establishment survey reported the economy added 211,000 jobs. With roughly offsetting revisions to the prior two months' job growth, this brings the average for the last three months to 174,000.

While the report on the whole is quite positive, one item especially worth noting is the increase in the employment-to-population ratio (EPOP) among prime-age men. The employment rate for prime-age workers edged up to 78.6 percent. This is a new high for the recovery, although it is still 1.7 percentage points below the pre-recession peak and 3.3 percentage points below the 2000 peak.

In April, the EPOP for prime-age women edged down to 71.9 percent, 0.9 percentage points below its pre-recession peak and 3.0 percentage points below its 2000 peak. However, the EPOP for prime-age men rose 0.2 percentage points to 85.4 percent. This is still 2.6 percentage points below its pre-recession peak and 4.1 percentage points below its 2000 peak, but the rise does suggest that there is still more room for EPOPs among prime-age men to increase. The fact that EPOP for both prime-age men and women remain below pre-recession levels and far below 2000 levels strongly suggests that the issue is a lack of demand in the economy and not a decrease in the ability or desire of people to work.

Interestingly, employment patterns do not appear to be following the story where benefits are going disproportionately to the most educated. Over the last year, the unemployment rate for college grads has not changed, while the EPOP is actually down by 0.3 percentage points from its year-ago level. At 2.4 percent the unemployment rate for college grads is much lower than for those with less education, but it is still 0.6 percentage points above its pre-recession low. By comparison, the unemployment rate for those with just a high school degree has fallen by 0.8 percentage points over the last year to 4.6 percent, while the EPOP for this group has risen by 0.8 percentage points.

The number of people involuntarily working part-time fell sharply to 5,272,000. This is a new low for the recovery, but still more than 800,000 above pre-recession levels. While the number of people involuntarily working part-time has fallen sharply since the implementation of the Affordable Care Act, the number of people choosing to work part-time is up by more than 1.8 million. In this vein it is worth noting that the number of incorporated self-employed is up by 8.2 percent in the first four months of 2017 compared with 2013.

If minimum wage hikes in many states and cities are leading to preventing teens from getting jobs, it is not showing up in the national data. Teen employment is up by 3.4 percent over the last year.

While the duration measures for unemployment all edged down, one discouraging area is the relatively low quit rate. At 11.2 percent it is roughly a percentage point below pre-recession levels and is 4.0 percentage points below the peak reached in 2000. Workers are still reluctant to give up jobs.

The big job gainers in April were restaurants (26,200 jobs), professional and technical services (23,100 jobs), local government (23,000 jobs), and health care (19,500 jobs). While the growth in restaurant and professional services were roughly in line with their longer-term trend, the jump in local government jobs is clearly an anomaly. Employment growth in health care has been somewhat slow the last four months, averaging 19,500 a month. This is down from 31,700 in the year up to December.

Retail added only 6,300 jobs after losing 27,400 in March. The sector is likely to remain weak for the near future. Construction employment has been virtually flat the last two months, after jumping by 88,000 in the prior two months. This fits the warm winter story.

There continues to be little evidence of accelerating wage growth. Year-over-year wages are up 2.5 percent, while they are rising at a 2.6 percent annual rate taking the average of the most recent three months with the prior three months.

On the whole, this is very positive report, but one that provides little evidence of the labor market overheating. The EPOPs suggest and quit rates indicate there is still considerable slack.

See also Calculate Risk: Comment: A Solid Employment Report.

Trade, Jobs, and Inequality (Video)

Participants:

Paul Krugman, Nobel Prize-winning economist, New York Times columnist, and distinguished professor at the Graduate Center.

David Autor, leading labor economist; professor at MIT, where he directs the School Effectiveness and Inequality Initiative; and editor in chief of the Journal of Economic Perspectives.

Brad DeLong, economics professor at U.C. Berkeley; weblogger for the Washington Center for Equitable Growth; and former U.S. deputy assistant secretary of the treasury, in the Clinton administration.

Anne Harrison, professor at the Wharton School, University of Pennsylvania; former director of development policy at the World Bank; and author of Globalization and Poverty.

How Do People Find Jobs?

R. Jason Faberman, Andreas I. Mueller, Ayşegül Şahin, Rachel Schuh, and Giorgio Topa at the NY Fed's Liberty Street Economics:

How Do People Find Jobs?: Most people find themselves looking for work at some point in their adult lives. But what brings employers and job seekers together? And does searching for a new job while unemployed lead to different outcomes

 than searching while employed? Little is known about the job search process for unemployed workers. Even less is known about the search process and outcomes for currently employed workers—so‑called “on‑the‑job” search. This Liberty Street Economics post aims to shed light on these questions and to draw some conclusions for our understanding of labor market dynamics more generally.

The New York Fed has been fielding a labor market supplement to its Survey of Consumer Expectations every October since 2013. The supplement focuses on the job search process for all individuals, regardless of their employment status. The questions cover search behavior (for instance, what methods respondents used to look for jobs, the time spent searching for work, the number and type of contacts with employers, and job interviews), as well as the nature, number, and characteristics of any job offers received. Pooling together three successive waves of the survey supplement yields data on about 2,300 employed workers, 165 unemployed workers, and 430 respondents who are classified as being out of the labor force, all between eighteen and sixty-four years of age. Labor force status is defined using the Bureau of Labor Statistics definition: Specifically, individuals are classified as unemployed if they are not currently employed, actively looked for work in the last four weeks, and are available to start work within the next seven days. Workers on temporary layoff are also classified as unemployed.

How Do People Look for Jobs?
The table below describes the “extensive margin” of job search, by labor force status: That is, how many people actively searched for work in the last four weeks, regardless of how much effort they put into it. We employ various definitions to measure active search. The first definition is based on whether respondents report having used at least one job search method out of a comprehensive list of possible methods, which includes applying for jobs, looking at job postings online or elsewhere, sending out resumes, and contacting employers, employment agencies, former coworkers, or other professional contacts. The second definition focuses on those who applied to at least one job posting. The final definition is a measure based on whether respondents spent any time searching for jobs in the last seven days.

 The most surprising finding is that search is common among employed workers. Depending on the specific measure used, roughly one in five or one in four employed

 workers actively looked for work during the four weeks preceding the survey. Almost all of the unemployed actively searched—a predictable finding, given the definition of unemployment. (The only exceptions come from those on temporary layoff.) A small fraction of respondents who were not in the labor force also searched. These are respondents who searched but were not available to start work in the next seven days and were therefore classified as out of the labor force.

Let us now turn to the “intensive margin” of job search: Conditional on having actively searched, how intensively did people in our survey look for jobs? Here we employ two measures: one is a measure of hours spent searching in the last seven days; the other is the number of job applications sent out (either online or through other means) in the last four weeks. We also further distinguish the employed by their “extensive margin”—that is, by whether or not they are actively looking for work. The table below reports the results. The main finding is that unemployed job seekers search harder than the employed. On average, the unemployed spend 8.4 hours per week searching, compared with 1.2 hours for the employed, and send out 8.1 applications per month, compared with 1.2 for the employed. If we focus on employed workers actively looking for work, we find that their search effort is still only about half that of the unemployed.

 What Works?
So far, we have focused on what people do to look for work. But how effective is their search? To answer this question, we have to look at the outcomes of their efforts. Here we consider two measures, both computed over the preceding four weeks: the number of employers who contacted our respondents about a job opening, and the number of actual job offers received. We can summarize the results as follows (see the table below): First, even though unemployed workers search about seven times as hard as the employed (as illustrated in the table just above), they only generate about twice the number of offers. Thus, searching while unemployed is much less effective in generating offers than searching while on the job. Second, employed workers actively looking for work receive the greatest number of employer contacts and job offers. So, again, searching while employed seems to have the highest return in terms of generating new offers. Third, even those employed workers who are not looking for new work receive a substantial number of employer contacts and offers. This finding illustrates the importance of informal contacts and recruiting. Informal contacts can include networking at industry events; conversations with friends, present or former coworkers, or business associates; and unsolicited contacts by employers, recruiters, or headhunters.

 These results are summarized in a slightly different way in the table below. Unemployed workers make up about 7 percent of our sample. They send out 40 percent of the total applications in the sample, but receive only about 16 percent of the total offers. By comparison, those employed and actively looking for work make up about 20 percent of the sample but receive almost half of all offers. Further, the employed not looking for work receive about one‑fourth of all the offers in our sample—more than the unemployed! They also receive more than half of all the unsolicited offers in our sample. These findings again point to the importance of informal contacts and recruiting in labor market churning.

Conclusion
We have found that “on‑the‑job” search is common among employed workers, and that the job search process is more effective for currently employed workers than for the unemployed. In the paper cited as the source of our table estimates, we also show that offers received by employed workers are better than those received by the unemployed, both in terms of the wage associated with them and in terms of their nonwage benefits. This is true even after controlling for detailed worker characteristics and prior work history.

What are the broader implications of these findings for our understanding of labor market dynamics? We know that job-to-job transitions are an important component of new hires, and an important driver of wage growth in the economy. Voluntary quits (typically followed by a transition to a new job) have been described by Chair Janet Yellen as an important marker of the health of the labor market. By highlighting the importance and pervasiveness of on‑the‑job search, we have provided some evidence on the search mechanisms that underlie voluntary quits and job‑to‑job transitions. By tracking these search processes over time we can gain further insights into the likely evolution of these important labor market markers going forward.
______________
Disclaimer The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Deconstructing Trump's Jobless Numbers

At MoneyWatch:

Deconstructing President Trump's jobless numbers: In Donald Trump’s address to Congress last week, he discussed the economy and the policies he intends to pursue. “We must honestly acknowledge the circumstances we inherited [from the Obama administration],” he said. “Ninety-four million Americans are out of the labor force.”

Let’s honestly examine this claim and whether it accurately portrays the circumstances the president inherited. ...

Unemployment versus Underemployment: Assessing Labor Market Slack

John Robertson at the Atlanta Fed's macroblog:

Unemployment versus Underemployment: Assessing Labor Market Slack: The U-3 unemployment rate has returned to prerecession levels and is close to estimates of its longer-run sustainable level. Yet other indicators of slack, such as the U-6 statistic, which includes people working part-time but wanting to work full-time (often referred to as part-time for economic reasons, or PTER), has not declined as quickly or by as much as the U-3 unemployment rate.

If unemployment and PTER reflect the same business-cycle effects, then they should move pretty much in lockstep. But as the following chart shows, such uniformity hasn't generally been the case. In the most recent recovery, unemployment started declining in 2010, but PTER started to move substantially lower beginning only in 2013. The upshot is that for each unemployed worker, there are now many more involuntary part-time workers than in the past.

Regarding the above chart, I should note that I adjusted the pre-1994 data to be consistent with the 1994 redesign of the Current Population Survey from the U.S. Bureau of Labor Statistics (see, for example, research from Rob Valletta and Leila Bengali and Anne Polivka and Stephen Miller ). This adjustment amounts to reducing the pre-1994 number of PTER workers by about 20 percent.

The elevated level of PTER workers has been most pronounced for workers in low-skill occupations. As shown in the next chart, PTER workers in low-skill jobs now outnumber unemployed workers who left low-skill jobs. Prior to the most recent recession, low-skill unemployment was always higher than low-skill PTER.

The increase in PTER workers is also mostly in the retail trade industry, as well as the leisure and hospitality industry, where low-skill occupations are concentrated. The PTER-to-unemployment ratio for the goods-producing sector (manufacturing, construction, and mining) has remained essentially unchanged. In those industries, unemployment and PTER move together.

Some researchers, such as our colleagues at the San Francisco Fed Rob Valletta and Catherine van der List, have argued that the increase in the prevalence of involuntary part-time work relative to unemployment suggests the importance of factors other than overall demand for labor. Among these factors are shifting demographics (a greater number of older workers who are less willing to do part-time work) and industry mix (more employment in industries with higher concentrations of part-time jobs). Such factors are almost certainly playing a role.

Recent analysis by Jon Willis at the Kansas City Fed  suggests that the elevated levels of PTER in low-skill occupations may reflect that during the last recession, firms reduced the hours of workers in low-skill jobs more than they cut the number of low-skill jobs. In other words, firms still had some work that needed to get done, probably with peak demand at certain times of the day, and those tasks couldn't readily be outsourced or automated.

As the following chart from Willis's research shows, between 2007 and 2010, low-skill (non-PTER) employment actually increased slightly overall, but the mix of employment shifted dramatically toward part-time.

Since the recession, the pace of (non-PTER) low-skill job creation has been modest (about 20,000 jobs per month compared with 60,000 jobs per month in the years preceding the recession). Initially, this trend helped reduce low-skill unemployment more than the incidence of PTER—one reason why the ratio of PTER to unemployment continued to increase.

But the number of PTER workers in low-skill jobs has since been declining as more people have been able to find full-time jobs. At the current pace of job creation and (net) transition rates out of PTER, Willis estimates it would take until 2020 to return to prerecession levels of low-skill PTER. That seems a reasonable guess to me.

The Problem with Puzder as Labor Secretary

My latest at MoneyWatch:

The problem with Puzder as Labor Secretary: Donald Trump’s pick for secretary of labor, Andrew Puzder, is scheduled to undergo confirmation hearings Thursday before the Senate Health, Education, Labor and Pensions Committee. Prior to his nomination, Puzder was the CEO of CKE Restaurants, the parent company of fast-food chains Hardee’s and Carl’s Jr.

Democrats and other critics of Puzder’s nomination have raised concerns about Puzder’s employment of an undocumented housekeeper (a transgression that has disqualified nominees of previous administrations). But for me, the biggest issue is the extent to which he can fulfill the Labor Department’s own stated mission, to be an advocate for labor...

It ends with:

...that’s a portrait of a “Secretary of Business Owners” rather than a “Secretary of Labor.” In this time of rising inequality, stagnant wages and increasing economic insecurity due to globalization and technological change, workers need someone to protect their interests, someone willing to work endlessly to improve all aspects of their working lives.

President Trump promised workers that he would stand up for them and bring decent jobs to regions of the country that have struggled in recent years. In my eyes, the nomination of Puzder for labor secretary betrays that promise, and to me, that’s reason enough that he should not be confirmed.

Three Reasons We’re Not Yet at Full Employment

Jared Bernstein:

Three reasons we’re not yet at full employment: It is often asserted that the U.S. labor market, where unemployment has been at or below 5 percent since late 2015, has reached full employment. But I’ve got three reasons we’re not yet quite there yet:

— the underemployment employment rate is still too high;

— employment rates are still too low;

— wage pressures are still too mild.

I’ll explain each in turn...

Housing Crisis Boxed in Some Job Seekers

Jay Fitzgerald at the NBER Digest:

Housing Crisis Boxed in Some Job Seekers: The housing crash of 2007-08 devastated many homeowners who suddenly found themselves facing an array of woes, from owning homes no longer worth the purchase prices to keeping up with mortgage payments amidst one of the worst recessions in generations. In Locked in by Leverage: Job Search During the Housing Crisis (NBER Working Paper No. 22929), Jennifer Brown and David A. Matsa find that being underwater on a mortgage in a distressed housing market impeded the job searches of these homeowners by reducing their mobility. By constraining job search, this reduced mobility likely damaged their long-term compensation and career prospects.

Housing-market downturns can devastate homeowners' overall wealth, and lower housing values can actually "lock in" owners who can't sell their homes with negative equity, forcing them to remain in their homes and limiting their mobility to buy homes and find work elsewhere. But little is known about how a housing bust specifically affects labor supply, largely because it's difficult to separate effects on labor supply and on labor demand.

These researchers studied the crash's effect on job searches. With data from a large online job search platform, they analyzed more than four million applications to 60,000 online job postings in the financial services sector between May 2008 and December 2009. The data encompassed a rich array of jobs, including posts for bank tellers, administrative assistants, software engineers, account executives, and financial advisers. The postings were spread across all 50 states, 12,157 ZIP codes and more than 700 commuting zones.

The researchers matched information from the job search platform to housing market data. Monthly estimates of home values and borrowing were drawn from Zillow and CoreLogic's Loan-Level Market Analytics, while labor market data came from the U.S. Bureau of Labor Statistics and the Bureau of the Census.

Home value declines and the presence of negative equity led job seekers in depressed housing markets to apply for fewer jobs that required relocation; a 30 percent decline in home values led to a 15 percent decline in applications for jobs outside of the job seeker's commuting zone.

When job searchers were constrained geographically due to the "lock in" effect of lower home values, they were more likely to apply for lower-level and lower-paying positions within their commuting zone.

This constrained search pattern was particularly pronounced in distressed housing markets with recourse mortgages, which allow lenders to go after a defaulting homeowner's other assets. The researchers found clear job-search differences in border areas in which one state allowed recourse mortgages and the other did not.

From the standpoint of firms, the constrained search of some prospective workers had two effects. Firms had reduced access to a national labor market if millions of Americans couldn't or wouldn't relocate due to housing value concerns. At the same time, firms within distressed housing markets faced less competition for labor and benefited by being able to hire well qualified workers at lower salaries than they might otherwise have had to offer.

The researchers conclude that the housing market has important effects on the labor market, as "workers who accept positions below their skill or experience levels forego opportunities to build their human capital." They note that those forced to seek lower-level jobs than they would typically consider could also crowd out other workers, who in turn suffer, creating a far-reaching labor market ripple effect "even if housing market constraints are short-lived."

Job Growth on Stable Course as Employment Rate Rises

Dean Baker

Job Growth on Stable Course as Employment Rate Rises: The unemployment rate inched up in January to 4.8 percent, as the economy reportedly added 227,000 jobs. The modest change in the unemployment rate was also associated with a rise in the employment-to-population ratio (EPOP) to 59.9 percent. This is equal to the previous high for the recovery in March of last year. The jobs growth figure was somewhat higher than had generally been expected, but is somewhat offset by the fact that the prior months’ numbers were revised down by 39,000.

While the rise in the EPOP is good news, it is still well below pre-recession levels. The drop remains even when looking at prime-age workers (ages 25-54), with the EPOP for prime-age men 2.7 percentage points below pre-recession peaks and the EPOP for women is down 1.5 percentage points. The overall EPOP for African Americans hit a new high for the recovery, at 57.5 percent. While these data are erratic, the January figure is more than a full percentage point above the year-round average for 2016.

Other data in the household survey were mixed, notably there was a substantial decline in the share of unemployment due to voluntary quits. The January percentage was 11.4 percent, 1.1 percentage point below its November peak. This measure of workers’ confidence in their labor market prospects is almost a full percentage point below the pre-recession peak of 12.3 percent, and almost four percentage points below the 15.2 percent peak in April of 2000. ...

Wage growth appears to have moderated slightly in the most recent data. The average hourly wage in January was 2.5 percent above its year-ago level. Comparing the average for the last three months with the prior three months, wages grew at just a 2.2 percent annual rate. It is worth remembering that there is some shift from non-wage benefits such as health care to wages, so that wage growth exceeds to some extent the rate of growth of compensation. The Employment Cost Index rose by just 2.2 percent over the last year. ...

The January job gains were likely in part attributable to weather, as there were few serious snowstorms in the northeast and Midwest in the period preceding the reference week, which is unusual for January. This could suggest somewhat weaker growth going forward. It is also worth noting the continued weakness in hours. Although the number of jobs has increased by 1.6 percent over the last year, the aggregate weekly hours index has risen by just 1.1 percent.

On the whole the report shows a labor force that is growing at a respectable, but not overly rapid rate. There is no evidence of overheating in the form of accelerating wage growth or longer workweeks. However by any measure the last jobs report of the Obama years is hugely better than the first one.

Little Change in Unemployment/Employment as Job Growth Slows

Dean Baker:

Little Change in Unemployment/Employment as Job Growth Slows: The Labor Department reported little change in the unemployment or employment rates in December, as job growth slowed slightly to 156,000 in the month. The unemployment rate edged up from 4.6 percent to 4.7 percent, but this is well within the margin of error of the survey. The overall employment-to-population ratio (EPOP) remained unchanged at 59.7 percent. The same is true for the EPOP for prime-age workers, which remained at 78.2 percent for the third consecutive month. This is more than 2 full percentage points below the pre-recession peak and almost four percentage points below the 2000 peak.

The December job growth was somewhat below the 180,000 average over the last year. Although the falloff is not an obvious cause for concern and the economy is clearly getting closer to full employment, there are aspects of the payroll survey that are disconcerting. ...

The average hourly wage is up by 2.9 percent both year-over-year and comparing the last three months with the prior three months. However, it is important to remember that compensation is being shifted from benefits to wages, so total compensation growth is slower.

It is also worth noting that average weekly hours are lagging, with the aggregate weekly hours index for December the same as the October level and just 1.0 percent above the year-ago level. This is not a pattern that would be expected in a tight labor market.

The other news in the household survey was generally positive. Involuntary part-time employment continues to edge down, while more people are choosing to work part-time. The number of people working part-time, for economic reasons, fell slightly to about 5,600,000 in December. It is now down by almost 2.2 million from December of 2013, before the key provisions of the Affordable Care Act (ACA) took effect. By contrast, the number of people choosing to work part-time has continued to rise, presumably because they no longer need to get insurance from their employer. It now stands just over 21,250,000, or more than 2.4 million above its pre-ACA level. The number of self-employed is up by 890,000 or just over 6.0 percent.

Less encouraging is a drop in the share of unemployment due to voluntary quits from 12.5 percent to 12.0 percent, although the share of long-term unemployment fell to 24.2 percent, a new low for the recovery.

By education levels, we continue to see the less educated improving relative to college grads. The EPOP for college grads actually fell 0.3 percentage points from 2015 to 2016. It is up by 0.4 percentage points for workers with just a high school degree.

On the whole, the December report indicates the labor market is continuing to strengthen as even  the slower pace of job growth is certainly faster than the 80,000 to 90,000 per month we might expect from demographics. However, the decline in average hours over the last year strongly argues against the claim that the labor market is overly tight and that we need be concerned over building inflationary pressures.

Improving How Job Markets Function: Active Labor Market Policies

Tim Taylor:

Improving How Job Markets Function: Active Labor Market Policies: A more fluid labor market is socially valuable, because it helps unemployment rates stay lower and offers broader opportunity. Also, employers who know that employees have decent and readily available outside options have better incentive to treat employees well. But most economists recognize that labor markets are full of "frictions," which is a catch-all term for the costs involved in making connections between willing workers and willing employers. (Indeed, the 2010 Nobel Prize in economics went to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides "for their analysis of markets with search frictions".) There's an old rule of thumb that one should expect a month of job search for every $10,000 you would like to earn, and even though that specific number is probably an unreliable guess, the comment makes the point that the time and information costs involved in finding a new job can be high. One of the very practical barriers for a lot of unemployed workers is a lack of information about available jobs, and a lack of experience in how to find the relevant information.

Active labor market policies are a government attempt to reduce these costs. In a December 2016 Issue Brief, the Council of Economic Advisers discusses the subject of "Active Labor Market Policies: Theory and Evidence for What Works."  The CEA defines active labor market policies as "policies that promote participation in the labor force and help workers match to employment opportunities. These programs include employment services, job search assistance, job training programs, and employment subsidies. But the empirical evidence also finds that not all approaches to supporting employment and earnings are equally successful, with some programs having substantial benefits relative to their costs while others do not."

As I have pointed out here before, US spending on active labor market policies (as a share of GDP) is considerably less than most other high-income countries. Here's a figure from the CEA:

Moreover, even this low US level has been on a generally downward trend for several decades:

Of course, the hard-headed question is whether active labor market policies work--and whether some work better than others. The CEA report cites an array of evidence on this point (for readability, the quotations that follow omit citations and footnotes).

On offering job search assistance and requiring participation from those receiving government benefits: "While job search assistance leads to faster employment, there is little evidence that it affects wages. Job search programs may also yield other benefits. When job search is required of recipients of unemployment insurance (UI), research shows that reemployment assistance typically saves the government several hundred dollars per participant in UI benefits by reducing time to reemployment ..."

On offering job training for various groups: "Job training programs focusing on economically disadvantaged adults, typically those with low earnings or levels of education, consistently yield significant positive effects on employment outcomes. Recent evidence comes from evaluations of WIA [Workforce Investment Act] training programs for disadvantaged adults ...  these training programs increased quarterly earnings between $500 and $800 (in the range of 10 to 25 percent increases) for workers by three years after receiving training, in addition to positive employment effects. ... Sectoral training, one specific type of training program that focuses on training workers for jobs in particular industries and which typically develops and implements training programs in partnership with employers, is an especially promising avenue for disadvantaged workers. ... In one successful example of training leading to positive results for mid-career workers ... when dislocated workers obtain training in the form of community college coursework, the equivalent of one academic year of courses translates into increases in long-term earnings of between seven and ten percent. They also find that these effects are more pronounced when coursework is concentrated on quantitative courses."

On employment subsidies for hiring workers: "While effective at encouraging employment, an important consideration for employment subsidies is that they be designed and administered in ways that mitigate two potential drawbacks: The first is that some portion of their value may be captured by firms who would have hired such workers in any event. A second is that targeted employer-based subsidies may lead to stigmatization of the targeted group among potential employers." I've written before on "What Do We Know about Subsidized Employment Programs?" (April 25, 2016), and noted that there are a couple of large-scale studies underway that should provide fuller evidence here.

Just to be clear, not all the evidence on active labor market policies is positive. The design and context of active labor market policies matters. But in my reading, the evidence is certainly strong enough to support additional large-scale experimentation with these policies, which can be designed in a way to facilitate a later evaluation of the results.

Finally, I'll add that the main focus of the CEA report is on US-based evidence about active labor policies, but an array of international evidence is also available. For a literature review, interested readers might begin with a literature review paper by David Card, Jochen Kluve and Andrea Weber What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations," published by the German Institute for the Study of Labor (IZA Discussion Paper No. 9236, July 2015).

Minimum Wage Increases and Earnings in Low-Wage Jobs

Brad DeLong:

I think I have to change my mind: Back when Card and Krueger first suggested that there was substantial effective monopsony power in the low-wage labor market and thus that there would be no disemployment effect from (modest) increases in the minimum wage to make it binding, I said: "Clever, but nahhh." The reason for their findings, I thought, was that labor demand is just inelastic in the short and perhaps the medium run--but maybe not in the long run.

I confess that I think I have to change my mind. Economists do not fail to find disemployment effects from (modest) increases in the minimum wage that make it binding because labor demand is inelastic and statistical power is insufficient. Employers actually do have substantial monopsony power in the low-wage labor market--even though they shouldn't. And the minimum wage is best thought of as an anti-monopsony rate-regulation policy that raises low-wage employment, raises average low-wage earnings, and brings the market closer to its competitive equilibrium:

Sandra Black, Jason Furman, Laura Giuliano and Wilson Powell: Minimum Wage Increases and Earnings in Low-Wage Jobs ...

Unemployment Rate Falls to 4.6 Percent in November, a New Low for Recovery

Dean Baker:

Unemployment Rate Falls to 4.6 Percent in November, a New Low for Recovery: The unemployment rate fell to 4.6 percent in November, almost equal to the pre-recession lows in 2007. However, the sharp decline was partly due to people leaving the labor force, the employment to-population ratio (EPOP) was unchanged at 59.7 percent. It actually fell slightly for prime-age workers (ages 25-54), from 78.2 percent to 78.1 percent, although it is still 0.7 percentage points above its year ago level.

The establishment survey put job growth at 178,000, roughly in line with expectations. The revisions for the prior two months’ data were largely offsetting, leaving the average for the last three months at 176,000.

This would be a healthy pace for an economy that is near full employment, but the low EPOP suggests that the economy still has a substantial way to before the labor force is fully employed. While there is some evidence of an acceleration in the pace of wage growth, it is very weak.

The average hourly wage reportedly fell 3 cents in November after a sharp jump reported for October. These erratic movements are likely due to measurement error, but the November fall does weaken the case for accelerating wage growth. Wages have risen by 2.5 percent over the last year.

When we factor in the shift from non-wage to wage compensation (mostly a reduction in health care benefits), this means there is essentially no evidence of wage acceleration whatsoever. The Employment Cost Index showed a rise of just 2.3 percent in compensation over the last year. If the average hourly wage for the last three months is compared with the prior three months, there is a bit more evidence with an annual rate of increase of 2.9 percent, but this is still very limited.

It is also worth noting that the labor share of corporate income is still far from recovering to its pre-recession level. It actually fell slightly in the third quarter, from 68.9 percent to 68.3 percent. While there is a modest upward trend in the labor share over the last two years, it is still more than 3.0 percentage points below the pre-recession level.

The somewhat slower pace of job growth could be associated with a speedup in productivity growth. Productivity grew at an annual rate of 3.1 percent in the third quarter, the fastest pace in two years. The quarterly numbers are highly erratic, and the 3.1 percent figure followed three quarters with negative growth, but it could be the beginning of an uptick in the growth rate.  Productivity growth has been extraordinarily weak in this recovery, which is the reason that job growth has been relatively rapid in spite of weak GDP growth.

If the weak productivity growth is explained by the availability of low cost labor, which can be profitable to hire for low productivity jobs, then a tightening labor market would be expected to lead to more rapid productivity growth as workers switch from low paying, low productivity growth, to higher paying, higher productivity jobs.

Apart from the decline in the EPOP, most other data in the household survey was positive, most notably a drop of 220,000 in the number of people involuntarily working part-time to a new post-recession low. At the same time, those choosing to work part-time jumped by 327,000. This is likely a dividend of the Affordable Care Act with workers now having the option to get insurance through the exchanges so that they don't need full-time jobs to get insurance through an employer. This number is now up by almost 2.2 million from December 2013, the month before the exchanges came into existence.

The percentage of unemployment due to people quitting their jobs rose to 12.5 percent. This is a new high for the recovery, which is equal to the pre-recession quit rates, although it is still almost 3.0 percentage points below the peaks hit in 2000. The duration measures all showed moderate improvements, with the average and median durations of unemployment spells hitting new lows for the recovery.

On the whole this report shows a relatively positive picture of the labor market. Job growth is still proceeding at a reasonable pace although wage growth remains moderate. The big question is how many people will come back into the labor force, but with no evidence of inflation, there seems little risk in waiting for the answer.

Employment Going South. Literally.

Dietrich Vollrath:

Employment Going South. Literally: From 1990 to 2015, the US economy as a whole increased employment by about 30 million (30,056,664 according to the BLS). Employment in 1990 was 118,900,000, so that meant that there was a roughly 25% increase in employment over that 25 year period, with a little more than 1 million jobs added per year, on average.

I’m not going to surprise anyone by saying that these 30 million jobs were not spread equally across the entire US. What I didn’t have a good sense of, personally, was how disparate the change in employment was across the US. This post is just some documentation about the absolute size of the change in job distribution across the US. ...

[analysis, graphs]

... Again, I’m not claiming that this is some kind of revelation here. The movement of population, and hence jobs, from the Northeast/Midwest to the Sunbelt is well known. What I found interesting was putting some tangible numbers of the shift. The little counter-factual I’m doing here is not very rigorous; there is no particular reason to believe that the 1990 distribution is the “right” distribution of jobs to compare against. But the 1990 distribution does have the feature of being prior to NAFTA and prior to China’s accession to the WTO, both of which are at times cited as sources of manufacturing job losses in the upper Midwest and Northeast.

The scale of the relative job changes, though, indicates that more of the losses have to do with free trade within the US than free trade outside of the US. The areas with relative decline lost 13 million jobs compared to the 1990 distribution of jobs. In total the US shed 6 million manufacturing jobs from 1990 to 2015 (18 million to 12 million, roughly). So this relative decline cannot possibly be a function only of manufacturing and international trade in manufactured goods. There is just too much relative movement out of the declining counties to attribute to this. This is a sloppy way of thinking about how this would work counter-factually (I’m ignoring spillovers entirely), but if you magically added 6 million extra jobs to those counties in relative decline, they would still be in relative decline compared to the Sunbelt in terms of jobs. They’d have 84.4 million jobs (as opposed to 78.4 million), but you’d expect them to have 95.6 million based on the 1990 distribution, so they would still be 11.2 million jobs off the pace.

The breadth of relative loss, though, seems striking, and is the one thing I did not appreciate prior to looking at this data. 909 counties lost jobs in absolute terms, which is 29% of all counties. Another 1,279 counties, 41% of all counties, gained jobs in absolute terms buy lost in relative terms. 944 counties, 30%, gained in relative terms. Just as many counties gained in relative terms as lost in absolute terms. The winning locations - Houston, Dallas, Atlanta, Miami, Phoenix, Denver, Vegas - won big, but the losing was spread across a wide area.

More jobs in 2015 are still located in places in relative decline (78.4 million) than are in places in relative ascent (70.5 million). Of those 78.4 million, 18 million (or about 12% of jobs) are in counties that experienced absolute job losses over the last 25 years. Most jobs are still in places that look to be losing out to Sunbelt cities over time. To the extent that your local economy plays a role in forming your opinions, this seems relevant, although I am going to stop now before I try to do any amateur political science or sociology.

Why Has Labor Force Participation Increased?

Ellyn Terry at the Atlanta Fed's macroblog:

Outside Looking In: Why Has Labor Force Participation Increased?: The labor force participation rate (LFPR) is an estimate of the share of the population actively engaged in the labor market. The LFPR has increased about 30 basis points over the past year (from the third quarter of 2015 to the third quarter of 2016)—a modest reversal in the precipitous decline in the LFPR that began in 2008. What accounts for this stabilization and—given the demographic and cyclical forces in play—how much longer can it last?

The following is perspective through the lens of the reasons people give for not participating in the labor force. Perhaps the component most responsive to changes in labor market conditions is what I will refer to as the "shadow labor force," which is made up of people who are not in the official labor force and are not actively seeking employment, but who say they want a job. (This group includes people discouraged over job prospects.) During tough times, the share of the population in the shadows rises, and during good times it falls. In the third quarter of 2016, about 2.3 percent of the population fell into this category—down from a high of 2.8 percent but still a bit above prerecession levels (see the chart).

But focusing solely on the decline in the shadow labor force to explain the recent reversal in the LFPR would be a mistake. In fact, high unemployment in the aftermath of the Great Recession was accompanied not only by a rise in the share of the shadow labor force, but also by an increase in the share of the population who said they didn't currently want a job—because of either a health issue or engagement in some other activity. Although some of this likely reflects trends already at work before the recession, some of it was also probably a cyclical response to weak job opportunities.

The chart below shows how these various factors cumulatively contribute to the decline in the LFPR between the third quarter of 2007 and the third quarter of 2016. It shows that, in addition to a larger share in the shadow labor force, the reasons for the decline between 2007 and 2016 also stemmed from a greater age-adjusted share who were too sick or disabled to work (purple) or in school instead of working (light blue). Interestingly, the share out of the labor force but wanting a job (dark blue) actually exerted the smallest downward force on LFPR of all of these three reasons. The green section represents the impact of the baby boomers: an increasing share of the population of retirement age. Partly offsetting this shift in the age distribution was a decrease in the propensity of these workers to actually retire (orange).

The next chart shows that almost all the nonparticipation factors that had put downward pressure on the LFPR since 2007 have reversed course and contributed positively to an increase in the LFPR during the past year. In particular, there was a decline in the share of the population who cited nonparticipation because of poor health or enrollment in school or were otherwise wanting but not looking for work. This decline in the schooling and illness nonparticipation rates is particularly noteworthy because it stands in contrast to the increasing trends that were in place prior to the recession (to read more, visit our LFP Dynamics page).

The only significant factor continuing to depress the LFPR during the past year is the impact of an increasing share of the population in age groups with relatively low labor force attachment. This factor brings me to the second question I posed earlier in this post: What will this picture look like going forward? Unfortunately, I think the answer is that it's very hard to say.

Other things equal, it seems reasonable to think that the nonparticipation rates attributable to age-adjusted schooling and poor health will eventually revert to the upward trends occurring before the recession, a reversion that will push down the LFPR. Probably the biggest wild card for the future is what will happen with decisions concerning retirement (and hence older individuals' LFPR). The trend toward retiring later in life has risen and fallen a couple of times during the past two decades. The positive role that later retirement has played in mitigating the overall decline in the LFPR in recent years—coupled with the steadily increasing share of the population approaching traditional retirement age—suggests that deferred retirement will be an especially important factor to keep an eye on. This point is nicely illustrated in this piece  by our colleagues at the Kansas City Fed, who look at the role of later retirement in reducing the rate of outflow of people from the labor force.

Job-to-Job Transitions in an Evolving Labor Market

An FRBSF Economic Letter from Canyon Bosler and Nicolas Petrosky-Nadeau:

Job-to-Job Transitions in an Evolving Labor Market: Job mobility—the ability of workers to move easily from one job to another—is commonly linked with economic opportunity. High job mobility in the United States has long been regarded as an advantageous feature. A fluid labor market serves as an important engine of economic and social mobility by enabling workers to change jobs for higher compensation, better work conditions, and opportunities for advancement. However, the aggregate rate at which people leave one job for another has been falling for almost two decades. Some analysts suggest this may be a sign that the labor market has lost some of its dynamism.

In this Economic Letter we explore the sources of this decline in the job-to-job transition rate. We find that a pronounced decline in the job switching behavior of young workers ages 16 to 24 since the late 1990s explains most of the overall decline in job-to-job transition rates. The labor market is as dynamic today as it was 20 years ago for workers ages 25 years and over.

Declining dynamism

People are constantly moving in and out of jobs. More people move from one job to another in a given month than move from unemployment into a new job. Job-to-job flows generally reflect the natural process of people shifting around to find the best job for their skill sets. In the process, these workers often secure higher wages, experiment with different jobs, and develop new skills. The fluidity of the U.S. labor market is envied by many economies around the world. However, as with other measures of dynamism, declining job-changing activity in the United States has raised concerns that the engine of opportunity is stalling (Davis and Haltiwanger 2014). Between 1997 and 2013, the most recent year of data available from the Census Bureau’s Survey of Income and Program Participation (SIPP), the rate at which people move out of one job and into another has declined just over 25%. In a typical month in 1997, nearly 3% of people over age 16 who were employed in one month had moved to a different job by the next month. By 2013 this had dropped to near 2% (see Figure 1 and Moscarini and Thomsson 2007).

Figure 1
Overall job-to-job transition rate has declined

Source: Survey of Income and Program Participation (SIPP) and authors’ calculations.
Gray bars represent NBER recession dates. Line breaks show periods with missing data.

The decline has been gradual since 1997 and appears to be part of a secular trend distinct from the ups and downs of business cycles. That said, job-to-job transitions tend to move in accord with the business cycle. Expansions, for instance, tend to coincide with more job-to-job transitions. This is particularly evident during the strong expansion of 2004–07, which led to a temporary reversal of the downward drift. People changed jobs more frequently during the housing boom, reflecting greater economic opportunities, but this acceleration came to an end with the onset of the Great Recession. More recently, as the labor market has strengthened in general, there has been a modest pickup in job-to-job transitions.

Job-to-job transitions: The life cycle and over time

The reasons for and benefits from mobility change over a person’s life. Early in life, the mobility of a fluid labor market allows people to experiment and discover their skills and desired careers (Gervais et al. 2016). Later in life, when people are more established in their careers, mobility reflects the opportunity to find better employment and wage gains or to develop new skills at different tasks. Job-to-job transitions occur more frequently earlier in life. They are highest under the age of 22, then decline rapidly over the remainder of the 20s before stabilizing in the 30s and over the rest of a person’s work life.

Comparing the two lines in Figure 2 reveals a striking drop in the job-to-job movement of young workers between 1997 and 2012. The mobility rates for workers under age 21 dropped about 2 percentage points, from about 6% to about 4%. This stands in stark contrast to the stability in job-to-job mobility for people over age 30. The rate among people ages 40 to 44, for instance, was 1.9% in 1997 and 1.7% in 2012. By this measure, mobility is essentially unchanged since 1997 for a large majority of the workforce.

Figure 2
Job-to-job transition rates decline with age

Source: SIPP and authors’ calculations.

We consider an alternative scenario that holds job-to-job rates for all age groups constant at their 1997 levels, and calculate what the overall rate would have been through 2013 relative to the actual rates. In the alternative scenario, actual rates of employment for each demographic group follow the historical experience, and only job-to-job mobility is held fixed. In particular, young workers in this scenario retain their high rates of job-to-job transitions from 1997 through 2013. This scenario suggests that the overall job-to-job transition rate would have been 2.4% in 2013, instead of the actual 2% rate. This underscores the fact that mobility, by this measure, has not changed significantly for workers over the age of 25.

The pronounced change in the job switching behavior of the young has had a significant impact on the overall decline. Even though individuals under age 25 represent only about 12% of the continuously employed, their diminished job-to-job transition rates account for 70% of the decline in the aggregate job-to-job transitions rate. This observation is clearer when we separate the population into two age groups, workers under age 25 and those 25 and older. Figure 3 reports the job-to-job transition rates for these two groups. It shows that much of the movement has been among younger workers (blue line), while the transition rate for the older group of workers (red line) shows no downward trend.

Figure 3
Young workers drive overall decline in job-to-job transitions

Source: SIPP and authors’ calculations.

To gain some insight into the reasons for the declining job-to-job transition rates among young workers, Figure 4 breaks the under-25 group into rates for different occupation groups: services (red line), clerical and retail sales (green line), managerial and professional sectors including technicians, finance, and public safety (yellow line), and sectors such as transportation, construction, mechanics, mining, and farm work (blue line). Together, these sectors represented 95% of employment of the young in 2013. The main finding in the figure is that the decline in job mobility is prevalent across all occupations. It’s also apparent that the dispersion in the job-to-job rates across occupations in 1997 is no longer present by 2013.

Figure 4
Decline for the young similar across occupations

Source: SIPP and authors’ calculations.

The decline in services (red line) appears to be the most pronounced. The rate of job-to-job transitions in 1997 was 5.5%. By 2013 it had declined to 3.5%. Nonetheless, job-to-job transitions in services were more frequent than in other sectors during this entire time period. Services provide a large and increasing share of employment for the young, growing from 23% of jobs in 1997 to 31% in 2013. This growth in share offsets some of the sector’s decline in transitions such that, on net, service occupations do not explain much of the overall decline in job-to-job transition rates for young workers. Of the other broad occupation groups reported in Figure 4, the transportation and construction sectors (blue line) contribute the most to the decline in job-to-job transition rates among young workers. The sector saw a large drop in employment of young workers over this period, and those remaining in the sector experience fewer job-to-job changes than in the past.

Possible explanations and consequences for the U.S. economy

Interpreting the decline in job mobility among the young and its implications for the future of the U.S. economy depends on the underlying explanations for this trend. We can only speculate at this stage. Some of the potential explanations raise concerns. For example, there has been a rising trend of young adults moving back home in recent years (Kaplan 2012). Whether this is a socially desirable development is unclear. While children gain some insurance against the rocky first years in the labor market by moving in with their parents, this may be at the cost of diminished experimentation with different jobs. Another concern is that technological changes that eliminate middle-level skilled jobs also eliminate opportunities for the young to develop and advance in their careers.

On the other hand, the decline in job mobility may be the result of improvements in the labor market rather than a symptom of deterioration. In a maturing economy, workers engage in longer periods of training and greater specialization. This could explain, in part, the trends we observe among young workers. As people earn advanced degrees, they are more likely to move directly into their career of choice and require less job experimentation. The probability of ending a job declines with tenure (Farber 1999). Thus, if young workers find the right job more quickly and stay in their positions longer, they may no longer experience as many job changes early in life. Finally, improved information technologies, such as job search and the screening of applications, have changed how people look for jobs (Stevenson 2009, Faber and Kudlyak 2016) and may have enabled better careers matches (Kuhn and Mansour 2014).

All in all, regardless of the decline in job-to-job mobility for younger workers, the continued fluidity of the labor market for the vast majority of the working population alleviates many of the concerns for the future functioning of the U.S. labor market.

Canyon Bosler is a graduate student at the University of Michigan and a former research associate at the Federal Reserve Bank of San Francisco.

Nicolas Petrosky-Nadeau is a research advisor in the Economic Research Department of the Federal Reserve Bank of San Francisco.

References

Davis, Steven J., and John Haltiwanger. 2014. “Labor Market Fluidity and Economic Performance.” NBER Working Paper 20479.

Faberman, Jason, and Marianna Kudlyak. 2016. “What Does Online Job Search Tell Us about the Labor Market?” FRB Chicago Economic Perspectives 40(1).

Farber, Henry S. 1999. “The Dynamics of Job Changes in Labor Markets.” Chapter 37 in Handbook of Labor Economics, edition 1, volume 3, eds. O. Ashenfelter and D. Card. Amsterdam: Elsevier, pp. 2,439–2,483.

Gervais, Martin, Nir Jaimovich, Henri E. Siu, and Yaniv Yedid-Levi. 2016. “What Should I Be When I Grow Up? Occupations and Unemployment over the Life-Cycle.” Journal of Monetary Economics 83, pp. 54–70.

Kaplan, Greg. 2012. “Moving Back Home: Insurance against Labor Market Risk.” Journal of Political Economy 120(3), pp. 446–512.

Kuhn, Peter, and Hani Mansour. 2014. “Is Internet Job Search Still Ineffective?” Economic Journal 124(581), pp. 1213–1233.

Moscarini, Giuseppe, and Kaj Thomsson. 2007. “Occupational and Job Mobility in the U.S.” Scandinavian Journal of Economics 109(4), pp. 807—836.

Stevenson, Betsey. 2009. “The Internet and Job Search.” Chapters in Studies of Labor Market Intermediation, pp. 67–86. Cambridge, MA: National Bureau of Economic Research.

Opinions expressed in FRBSF Economic Letter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.

Strong Employment Gains for Prime-Age Workers as Wage Growth Accelerates

Dean Baker (see also Calculated Risk, Jared Bernstein):

Strong Employment Gains for Prime-Age Workers as Wage Growth Accelerates: The Labor Department reported the economy added 161,000 jobs in October. With modest upward revisions to the prior two months’ data, the average for the last three months is 176,000. The unemployment rate edged down to 4.9 percent, but the employment rate also edged down to 59.7 percent, as the household survey showed a small decline in both employment and labor force participation.

However the picture is much better for prime-age workers (ages 25–54). Their employment-to-population (EPOP) ratio rose 0.2 percentage points to 78.2 percent. This is the highest it has been in the recovery, although it is still 2.1 percentage points below the pre-recession peak and 3.7 percentage points below its 2000 peak.

It’s worth noting that the improvement in prime-age EPOPs occurred for both men and women. The EPOP for prime-age men is up by 4.6 percentage points from its trough in December of 2009. The EPOP for prime-age women is up by 2.9 percentage points from its recession trough in September of 2011, although women were much less hard hit by the downturn.

Using the 2000 peaks as the base of comparison, the EPOP for women is down by 3.3 percentage points while the EPOP for men is down by 4.5 percentage points. While the falloff has been larger for men than women, there have been sharp declines for both, indicating that the problem is the labor market, not the physical and/or psychological state of men.

Other data in the household survey were also positive. ....

There was little change in the duration measures...

The numbers of voluntary and involuntary part-time workers were little changed....

Interestingly, recent growth has not especially favored more educated workers. Over the last year, employment rates for people with just a high school degree are up by 0.5 percentage points, while those with some college have seen a rise of 0.7 percentage points. By contrast, the EPOP for workers with college degrees has fallen by 0.1 percentage points.

Most of the data on the establishment side survey should be seen as positive, in spite of the somewhat slower pace of job growth. Wage growth appears to have accelerated modestly. The average hourly wage over the last three months increased at a 2.9 percent annual rate compared with its average over the prior three months. Over the last year, the average hourly wage is up 2.8 percent.

Some of this wage growth does not indicate more rapid growth in compensation, but rather a shift from benefits (mostly health care) to wages. The employment cost index for the last year showed private sector wages rising 2.4 percent while benefits increased by just 1.8 percent.

More rapid wage growth is consistent with a story where workers are leaving low-paying jobs for better paying jobs. In this respect it is worth noting that lower paying industries were not sources of big job gains in October. ...

This jobs report provides solid evidence that the labor market is improving for most of the labor force. Workers are taking advantage of a tighter labor market to move into better paying jobs.

No, U.S. Manufacturing Isn't Really Booming

Justin Fox:

No, U.S. Manufacturing Isn't Really Booming:...[Is]American manufacturing .. in decline? An answer frequently offered by wonky economics journalists is that, no, U.S. manufacturing output has actually kept growing. ...

There's a catch, though. As economist Susan N. Houseman of the W.E. Upjohn Institute for Employment Research ... points out, about half of the growth in U.S. manufacturing output since 1997 has been in just one sector: computer and electronics manufacturing.

If it weren't for computers and electronics (which includes semiconductors), manufacturing output would still be well below its 2008 peak and only 21 percent higher than in 1997...

The ... way those computers-and-electronics numbers are arrived at is worthy of a closer look. ... Without adjusting for deflation, value added in computer and electronics manufacturing is up 45 percent since 1997. With the adjustments, it's up 699 percent! What's happening here is that the Bureau of Economic Analysis has been trying to account for vast improvements in ... quality... Writes Houseman:

Such quality adjustment ... can make the numbers difficult to interpret..., figures that exclude this industry ... arguably provide a clearer picture of trends in manufacturing output.

As it stands now, those trends don't look impressive. U.S. manufacturing output has held up a lot better than manufacturing employment. But it definitely isn't booming.

How Much Bigger Can the U.S. Labor Force Get?

Nick Bunker:

How much bigger can the U.S. labor force get?: The U.S. labor market continues to recover from the still lingering effects of the Great Recession, but the question on the minds of many economists and analysts is how long can the healing continue? Or, in other words, has the U.S. economy hit “full employment”...? Understanding trends in the labor force participation rate is key for answering this question. ...

Views on labor force participation today vary on the extent to which structural forces or cyclical effects from the Great Recession of 2007-2009 are still affecting the participation rate. Many economists and analysts point to the role of structural forces or trends that long predate the Great Recession. But the long-term trend that gets cited the most is the aging of the working population as the Baby Boomer generation reaches retirement. The estimates on the effects of aging can vary quite a bit, but an estimate by the White House’s Council of Economic Advisers puts about half of the decline in participation from 2007 to 2014 into the “aging” category. When it comes to a policy response, it’s hard to change the age distribution of the population...

The importance of structural forces and demographics might give an impression that labor force participation or other trends are immutable and have to simply be endured. Regardless of how much slack remains in the labor market..., several structural factors can be addressed through policy actions.

Consider a new paper by Princeton University economist and former Council of Economic Advisers chairman Alan Krueger. The paper takes a direct look at the labor force participation rate and tries to understand what is depressing participation for men and women who are in prime working ages of 25 to 54. When it comes to prime-age men, health problems seem to be a huge barrier to labor market participation. According to the paper, almost 50 percent of men in this age group are taking medicine to control pain, and about 40 percent of this group say health issues are preventing them from taking a job. This is structural force that is not directly related to the Great Recession, but it certainly is amenable to a policy response.

As Krueger notes, such a trend means increased health insurance may help this trend or policymakers may want to look at pain-management interventions. When it comes to trends for prime-age women, there’s research pointing to the importance of family-friendly policies, or rather the lack thereof. ... Policies that help provide childcare and paid family and medical leave seem likely to help push back against these trends... And paid leave may also help male employment by allowing workers to take time off for their own health problems.

Of course, there is still the possibility that cyclical forces are pushing down the labor force participation rate. ... The only way we’ll really know is if policymakers, especially at the Federal Reserve, continue to be patient and help the current recovery continue.

Unemployment Insurance Generosity and Aggregate Employment

Arindrajit Dube, Chris Boone, Lucas Goodman, and Ethan Kaplan:

Unemployment Insurance Generosity and Aggregate Employment: Abstract We estimate the impact of unemployment insurance (UI) extensions on aggregate employment during the Great Recession. Using a border discontinuity design, we compare employment dynamics in border counties of states with longer maximum UI benefit duration to contiguous counties in states with shorter durations between 2007 and 2014. ... Using either the baseline or the “refined” border design, we find no statistically significant impact of increasing unemployment insurance generosity on aggregate employment. Similar results obtain from instrumental variables estimates that only use variation in UI benefit duration induced by national-level policy changes—namely the 2008 benefit extension and the subsequent 2014 expiration of the Emergency Unemployment Compensation program. Our point estimates vary in sign, but are uniformly small in magnitude and most are estimated with sufficient precision to rule out substantial impacts of the policy. Based on the confidence intervals of all of our preferred specifications, we can reject negative impacts on the employment-to-population ratio exceeding 1.2 percentage points from an increase in maximum UI benefit duration from 26 to 99 weeks. Our more precise estimates rule out decreases in excess of 0.5 percentage points from the policy expansion. Overall, our macro employment estimates from the UI benefit extention can be rationalized with a small, negative labor supply effect from the UI benefit expansion—as suggested by a number of recent studies—along with a moderately sized fiscal multiplier. 

Also, our results differ substantially from Hagedorn, Karahan, Manovskii and Mitman (2015) and Hagedorn, Manovskii and Mitman (2016)  despite employing apparently similar strategies. In an online Appendix, we compare our results to those papers and discuss in detail what accounts for the substantial differences in our respective estimates, and decompose the differences due to choice of dataset and specifications.

Here is the link to the paper: http://bit.ly/2dq1IYA.

Here is a link to a media advisory with a synopsis of the study: http://bit.ly/2dLTrkX.

Out of Prison, Out of Work

Justin Fox:

Out of Prison, Out of Work: ...A single variable -- having a criminal record -- is a key missing piece in explaining why work rates and LFPRs [labor-force participation rates] have collapsed much more dramatically in America than other affluent Western societies over the past two generations. This single variable also helps explain why the collapse has been so much greater for American men than women and why it has been so much more dramatic for African American men and men with low educational attainment...

[T]he great incarceration wave that began in the 1970s has produced millions of ex-convicts who are ill-prepared for jobs or are discriminated against by employers even when they are prepared. ...

This is on the one hand tragic: millions of American men who were imprisoned in the 1970s through 1990s have been thrust into a labor market that really doesn't want them. On the other hand, it is at least potentially fixable. Job displacement by technology is probably unstoppable, but how we punish crime is a public-policy choice. Incarceration rates have already been falling with the big declines in crime since the early 1990s, and the past few years have seen the growth of a bipartisan consensus (interrupted by the current presidential campaign, to be sure) that the U.S. throws too many people in prison for too long and doesn't do nearly enough to rehabilitate them. Prison and sentencing reform might actually be the country's best shot at thwarting that "linear trend" that would put a quarter of prime-age men out of work by 2050.

Job Growth Slows In August

Dean Baker:

Job Growth Slows In August: The Labor Department reported that the economy created 151,000 new jobs in August — slightly less than generally expected. The unemployment rate was unchanged at 4.9 percent and the employment-to-population ratio (EPOP) was also unchanged. ...

While the overall pace of job growth is still reasonably healthy even with the slowdown, a disconcerting item is a decline in the duration of the average workweek. This stood 34.3 hours in August, down from 34.4 hours in July and 34.6 hours in August of 2015. The drop was large enough to lead to a decline of 0.2 percent in the index of aggregate weekly hours, in spite of the growth in employment.

This downward trend could indicate slower hiring in the future. It also seems to contradict the common assertion in the business press that employers are having difficulty finding qualified workers. If this were true, they would be pushing the workers they have to work longer hours.

Wage growth also shows no evidence of accelerating. The average hourly wage increased by 2.4 percent over the last year. Over the last three months, compared with the prior three months, the average hourly wage increased at a 2.5 percent annual rate.

On the household side, the news was mostly positive. There was an increase in the percentage of unemployment due to voluntary quits to 11.3 percent. Although this is the highest level for the recovery, it’s a full percentage point below the pre-recession peak and almost 4.0 percentage points below the peak reached in 2000.

All the duration measures of unemployment fell in the month. With the mean duration of unemployment spells dropping by 0.5 weeks to 27.6 weeks and the median duration falling by 0.4 weeks to 11.2 weeks. And there was a rise in the percentage of black teens with jobs to 23.3 percent, an increase of 2.7 percentage points from the July figure and a new high for the recovery.

There was an increase of 113,000 in the number of people involuntarily working part-time, although this figure is still down by 428,000 from the year ago level. The number choosing to work part-time dropped in August, but is still up by 751,000 from last year’s level. ...

While the overall EPOP was unchanged in August, the EPOP for prime age workers (ages 25–54) edged down by 0.2 percentage points to 77.8 percent. This puts it 2.5 percentage points below its pre-recession peak and more than four full percentage points below the 2000 peak.

On the whole the August report suggests a moderately healthy labor market, but one that is not reaching any constraints. With the EPOP still well below pre-recession levels, there are still many potential workers who would like jobs. Similarly, the recent drop in hours suggests that firms are not straining to find workers as does the data showing wage growth is maintaining a moderate pace.

See also: Calculated Risk, Jared Bernstein.

The Fed’s Effect on Black Americans

Narayana Kocherlakota:

The Fed’s Effect on Black Americans: The U.S. Federal Reserve appears to be paying more attention to how its policies affect black Americans. This is a wise move...

Imagine we’re in the midst of a severe recession. In deciding how aggressively to respond by lowering interest rates or buying assets, Fed officials must weigh the risk of unduly high inflation against the benefit of reducing unemployment. That benefit will be much greater for blacks..., any policy that reduces the overall unemployment rate by one percentage point ... reduces their unemployment rate by nearly two percentage points.

The differential impact also matters now, as the Fed contemplates removing stimulus. ...

The Fed rightly aims to pursue policies that are best for the economy as a whole. But I don’t believe that it will be seen as truly representative of all Americans unless it understands the differential impact of its policy choices on key demographic subgroups. It’s good to see from the minutes that the central bank is engaged in doing so.

Employment Again Rises Sharply in July

Dean Baker:

Employment Again Rises Sharply in July: The Labor Department reported the economy added 255,000 jobs in July. With the June number revised up to 292,000, the average for the last three months now stands at 190,000. The household survey also showed a positive picture, with employment rising by 420,000. With new people entering the labor force, the employment-to-population ratio (EPOP) edged up by 0.1 percentage point to 59.7 percent, while the unemployment rate remained unchanged at 4.9 percent.

The job gains in the establishment survey were broadly based. ...

Other news in the establishment survey was also positive. The length of the average workweek edged up by 0.1 hours leading to an increase in the index of aggregate weekly hours of 0.5 percent. There also is some evidence of more rapid wage growth. The year-over-year increase in the average hourly wage was 2.6 percent. The annual rate comparing the average for the last three months with the prior three months was 2.8 percent. If this continues, workers will be able to get back some of the share lost to profits in the downturn.

While the household survey is mostly positive, there are some aspects that continue to suggest labor market weakness. The duration measures of unemployment all increased in July, with the average duration of unemployment spells rising from 27.7 weeks to 28.1 weeks and the median from 10.3 weeks to 11.6 weeks. These durations are more consistent with a recession than a strong labor market.

Similarly, the number of people involuntarily working part-time rose slightly to 5.94 million. This followed a sharp drop in June, but it is nonetheless quite high for a labor market with an unemployment rate of 4.9 percent. Also, the percentage of unemployment due to voluntary job leavers remained at 10.7 percent. This compares with peaks of more than 12.0 percent before the recession and over 15.0 percent back in 2000.

One interesting note is that the least educated workers appear to be the biggest beneficiaries of recent job growth. The EPOP ratio for workers without high school degrees rose by 2.1 percentage points for the month and is 1.6 percentage points above its year ago level. The unemployment rate for this group is 1.9 percentage points below the year ago level. By contrast, the EPOP ratio for college grads is down by 0.5 percentage points from its year ago level while the unemployment rate is unchanged. The unemployment rate for workers with just a high school degree fell by 0.5 percentage points over the last year.

One positive item in this report is a sharp drop in black teen unemployment from 31.2 percent to 25.7 percent. These data are highly erratic, but the June level was a sharp reported rise from a low of 23.3 percent in February.

This is mostly a very positive report. In addition to the strong growth in jobs in the establishment survey, the household survey also showed a large jump in employment. The increase in hours, coupled with some evidence of more rapid wage growth, add to the positive picture. The labor market still has some way to go to fully recover, but it is making progress.

See  also Calculated Risk, Jared Bernstein.

Trump Jr.’s Pants-on-Fire Allegation of Manipulated Jobs Numbers

Jeff Frankel at Econbrowser:

Trump Jr.’s Pants-on-Fire Allegation of Manipulated Jobs Numbers: When interviewed about the unemployment numbers, which have fallen steadily since 2010, Donald Trump Jr., replied “These are artificial numbers. These are numbers that are massaged to make the existing economy look good, to make this administration look good when, in fact, it’s a total disaster.” PolitiFact asked a variety of experts about the quote. Their bottom line: the quote from the younger Trump was a “Pants on Fire” lie. The truth is that presidents don’t and can’t manipulate the jobs numbers. No White House has even tried — at least not since Richard Nixon made a heavy-handed attempt in 1971 to interfere with BLS staffing. After that, extra firewalls were put in place.

Here is my own full response to PolitiFact’s question regarding the Trump claim...

Employment Rebounds in June, but Unemployment Edges Higher

Dean Baker

Employment Rebounds in June, but Unemployment Edges Higher: The Labor Department reported that the economy added 287,000 jobs in June, a sharp bounce back from the 11,000 jobs now reported for May. A big factor in the reversal was the end of the Verizon strike, which subtracted 37,000 jobs from the May growth number and added the same amount in June, but even adjusting for this effect, the June growth figure is much stronger.

The job gains were widely spread across sectors. ...

The average hourly wage is 2.6 percent above its year-ago level. In the last three months, it has risen at a 2.7 percent annual rate compared with its level for the prior three months. While there has been some acceleration in wage growth by this measure, the Employment Cost Index shows no upward trend whatsoever. Clearly compensation is being shifted in part from benefits, most importantly health care, into wages. It is important not to mistake this shift for an increase in labor costs.

The household survey showed a bleaker picture. The unemployment rate rose modestly to 4.9 percent. The employment-to-population ratio (EPOP) fell to 59.6 percent as employment measured by the household survey increased by just 67,000. Employment in the household survey is still more than 200,000 below its March level.

By demographic group, the most disturbing item is the reported rise in the unemployment rate among black teens to 31.2 percent. It had been 23.3 percent in February. These data are highly erratic, but the trend is large enough that it could reflect a substantial deterioration in the labor market.

Employment patterns by education are showing an interesting pattern in this recovery. Over the last year the unemployment rate for college grads has not changed while their EPOP is down by 0.3 percentage points. By contrast, the unemployment rate for those with a high school degree has fallen by 0.4 percentage points and by 0.6 percentage points for those with less than a high school degree. Their EPOPs have risen by 0.3 and 1.2 percentage points, respectively. The increased demand for skills is not obvious in this picture.

Other aspects of the household survey were mixed. There was a drop of 587,000 in the number of people working involuntarily part-time, which more than reversed a sharp rise reported for May. The number of discouraged workers is more than 150,000 below its year-ago level and not too far above pre-recession levels. The duration measures of unemployment were mixed. The median duration of unemployment spells fell slightly to 10.3 weeks, a new low for the recovery, but both the average duration and share of long-term unemployed rose slightly.

The percentage of unemployment due to voluntary quits remained constant at 10.7 percent. This is near the high for the recovery, but still far below pre-recession levels.

On the whole, this should be seen as a modestly positive report. The job growth in the establishment survey was impressive, but it still only brings the three-month average to 147,300. At the same time, the household survey is indicating a much weaker picture. The establishment survey is generally a better measure, but even the establishment survey is not showing strong job growth over the three-month period.

See also:

• The Jobs Recovery May Not Be Flashy, But It’s Strong - FiveThirtyEight
• Employment Situation Report is a Monthly Statistics Lesson - Barry Ritholtz
• Strong job growth in June inspires optimism - EPI
• A Strong Report following a Weak Report - Calculated Risk
• Jobs Report: You’ve gotta smooth these noisy data - Jared Bernstein

Is the Labor Market Tossing a Fair Coin?

David Altig:

Is the Labor Market Tossing a Fair Coin?, Macroblog: How important is tomorrow's June employment report? In isolation, the answer would surely be not much. The month-to-month swings in job gains can be quite large, and one month does not a trend make.

And yet, there seemed to be a pretty significant reaction to the May employment number...

I get it. I don't speak for the Fed, of course—above my rank—but I am in fact one of those who regularly cautions against putting excessive weight on one number. And I am also one of those taken aback by the May employment report, so much so that my view of the economy changed materially as a result of that report.

Let me check that. My view of the risks to the economy, or more specifically the risks to my assessment of the strength of the economy, changed materially.

Here's an analogy that I find useful. Flip what you assume to be a fair coin. The probability of getting a heads, as we all know, is 50 percent. And if you weren't too traumatized by the statistics courses in your past, you will recall that the probability of two heads in a row is 25 percent, dropping to just about 13 percent of the coin coming up heads three times in a row.

Now, 13 percent is not zero, but it may be getting low enough for you to begin to wonder about your assumption that the coin is actually fair. If you have some stake in whether it is or isn't, you might want to take one more toss to get a little more evidence (since the odds of getting four heads in a row is, while not impossible, pretty improbable).

The point is that it wasn't just the May statistic that was striking in last month's report, but also the fact that the March and April numbers were revised downward to the tune of nearly 60,000 jobs. And if you step back a bit, you will see that the rolling three-month average of monthly job gains has been declining through the first half of the year (as the chart shows), even adjusting the May number for the Verizon strike:

Strike-adjusted, the May job gains were the lowest since December 2013. The three-month average (again strike-adjusted) was the lowest since the middle of 2012. In other words, although the year-over-year pace of jobs gains has been holding up, momentum in the labor market is decidedly softer—at least when measured by payroll employment gains.

I have been assuming that the U.S. economy will, for a while yet, continue to create jobs at a pace greater than necessary to maintain the unemployment rate at a more or less constant level. That pace is generally believed to be about 80,000 to 140,000 jobs per month, depending on your assumptions about the labor force participation rate. Another jobs report (including revisions to past months) that counters that assumption would, I think, cause a reasonable person to reassess his or her position.

Based on today's ADP report, the odds look good for some decent news tomorrow. On the other hand, if the June employment number does tick up, some observers will no doubt note that it is a pre-Brexit statistic. It may take a few more flips of the coin to determine if that consideration matters.

The Continued Rigidity of Wages in the United States

Nick Bunker:

The continued rigidity of wages in the United States: “Wage rigidity” is an important feature of many models of the macroeconomy...

Some research on wage rigidity challenges this assumption. Pointing to data on individual wage growth, some economists argue that the wages of new hires is more important. If wages are really rigid, then the inflation-adjusted wages of new hires won’t vary as recessions come and go. Yet these researchers can point to data showing the wages of new hires moving up during economic expansions and down during recessions. So perhaps wages are more flexible than some think.

Now comes a new paper that shows how the cyclical nature of the wages of new hires isn’t really evidence against wage rigidity. The working paper, by economists Mark Gertler of New York University, Christopher Huckfeldt of Cornell University, and Antonella Trigari of Bocconi University, was released earlier this month. The three economists’ major point is to show that looking at the wages of all new hires in the United States is lumping together two groups of workers with different experiences. There are new hires who were previously unemployed and then there are new hires who were previously employed. ...

What they find is that the trends in wages for these two different groups of new hires are clearly different. The wages for new hires from the unemployment line don’t vary much more over time than the wages of already employed workers. But the wages of new hires from the ranks of the already employed do vary. This phenomenon, however, is less about flexible wages and more about workers moving up the job ladder, which mostly only happens during economic expansions, and is the reason why wages for these new hires move with economic cycles.

Outside of the implications for macroeconomic models of the labor market during recessions, the results from Gertler, Huckfeldt, and Trigari are also a reminder of the effects an economic downturn can have on workers’ career earnings. Recessions hinder the hiring of already employed workers, which hurts their chances of climbing the job ladder and future wage gains. Downturns don’t just harm the workers who lose jobs, but also the ones who keep their jobs.

This Job Market Slump Started a While Ago

Justin Fox (also in today's links):

This Job Market Slump Started a While Ago: The sharp May hiring slowdown revealed in Friday's employment report took a lot of people -- including me -- by surprise. It shouldn't have. Things have actually been on the downswing for the U.S. labor market for months, according to the Federal Reserve's Labor Market Conditions Index.

The LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. ... As you can see from the chart, the index has now declined for five straight months -- its worst performance since the recession. The index does get revised a lot. ...

Though the signals coming from the U.S. labor market have been mostly negative for several months now, according to the LMCI, they'll have to get much worse before it indicates that the economy is falling into a recession. Still, this is clearly more than just one off month.

The Dynamics of Labor Market Adjustment to Trade Liberalization

From Microeconomic Insights:

The dynamics of labor market adjustment to trade liberalization, by Rafael Dix-Carneiro: International trade theory has typically ignored the costs of adjusting to a change in trade policy, focusing instead on static models and long-run conclusions. However, adjustment costs are central to much of the controversy over trade liberalization. This work measures the importance of the dynamics of adjustment in shaping the distributional consequences of trade policy, and characterizes the time it takes for the economy to complete the transition to the new long-run equilibrium. When these adjustment costs are taken into account, the benefits of trade liberalization can be substantially smaller. ...

A Disappointing Employment Report

Calculated Risk:

A Disappointing Employment Report: The headline jobs number was very disappointing, and there were downward revisions to job growth for prior months. The key negatives were few jobs added (only 38 thousand, although the Verizon strike cut the job growth by about 37 thousand), a decline in the participation rate, and a sharp increase in the number of people working part time for economic reasons. A few positives include wage growth, a lower unemployment rate (however, for the wrong reason - a lower participation rate), and fewer long term unemployed. ...

There are still signs of slack (as example, part time workers for economic reasons increase sharply, and elevated U-6), but there also signs the labor market is tightening (decline in long term unemployed, slight pickup in wages). Overall this was a disappointing report.

Brad DeLong:

The way to bet is that two-thirds of the surprising component of this month's employment report will be reversed over the next quarter or so.

Nevertheless: does anybody want to say that the Federal Reserve's increase in interest rates last December and its subsequent champing-at-the-bit chatter about raising interest rates was prudent in retrospect? Anyone? Anyone? Bueller?

And does anybody want to say--given that the downside risks we are now seeing were in the fan of possibilities as of last December, and given that the Federal Reserve could have quickly reacted to neutralize any inflationary pressures generated by the upside possibilities in the fan last December--that the Federal Reserve's increase in interest rates last December and its subsequent champing-at-the-bit chatter about raising interest rates was sensible as any form of an optimal-control exercise?

And we haven't even gotten to the impact of the withdrawal of risk-bearing capacity from the rest of the world that happens in a Federal Reserve tightening cycle...

Dean Baker:

Job Growth Plunges in May, Although the Unemployment Rate Fall to 4.7 Percent: The Labor Department reported that the economy created just 38,000 new jobs in May, the weakest job growth since September of 2010, when it lost 52,000 jobs. In addition, the jobs numbers for the prior two months were revised down by 59,000, bringing the average for the last three months to just 116,000.

The household survey showed a drop of 0.3 percentage points in the unemployment rate, but this is not especially good news. The decline was almost entirely due to people leaving the labor force. The employment to population ratio [EPOP] was unchanged at 59.7 percent, 0.2 pp below the peak for the recovery.

The drop in EPOPs is especially disturbing since it is among prime age workers and it is for both women and men. ... While many analysts have tried to explain this drop as a supply side story, it seems implausible... The only plausible explanation is that the demand for labor has weakened sharply. ...

Other data in the household survey was mixed. The number of people involuntarily working part-time jumped by 468,000 (7.8 percent). However the duration measures of unemployment all fell in May. The percentage of the unemployment due to voluntary quits was little changed. The number of people who chose to work part-time continued its upward path, growing by 110,000. It is now 640,000 above its year ago level.

There was little positive news in the establishment survey. ...

There is little change in the wage growth picture, with wages up by 2.5 percent over the last year, although the annualized rate comparing the most recent three months with the prior three months is somewhat better at 2.9 percent. It is important to remember that wages have been rising faster than total compensation, as employers have been reducing the generosity of their health care benefits.

Adding to the picture of weakness in this report, the one-month employment diffusion index, which shows the percentage of industries adding jobs, was just 51.3 in May, the lowest reading since February of 2010. The 3-month and 6-month indexes, which reflect employer hiring intentions, were similarly weak. The index of aggregate hours rose just 0.1 percent in May, the same as the prior two months and is actually below its January level. It would be difficult for the Fed to look at these data and say that the economy should be growing more slowly.

Payroll Number Lower than Expected but Trend Holds at 200,000

Jared Bernstein on the jobs report:

Jobs report: Payroll number lower than expected but trend holds at 200,000: Payrolls rose 160,000 last month, less than the 200,000 we’ve come to expect and the smallest monthly gain since last September. Revisions to the prior two months data shaved 19,000 off of their previously reported gains.

However, though this slower pace could represent a downshift in the rate of job creation, it is far too soon to jump to that conclusion. These monthly numbers are jumpy and require averaging a few months’ gains to get at the underlying trend. In fact, the monthly trend over the past three months is precisely 200,000... So, even while one can point to other slowing indicators, especially the 0.5% GDP growth in the first quarter of the year, do not assume the job market is softening.

The rest of the report provides indicators that bounce both ways. On the soft side, the slipping of the labor force participation rate was a real disappointment and a reversal of a recent upward trend in this closely watched metric of movements in and out of the labor force (see figure). After rising from a low of 62.4% last September to 63% in April, the LFPR ticked back down in May to 62.8%. That’s still significantly off its lows, and again, the monthly numbers are jumpy, but this was the number I liked least in today’s report, especially since the same 0.2 percentage point decline was seen among prime-age workers, meaning the drop can’t be pinned on aging retirees.

On the other hand, both average hourly wages and weekly earnings continue to beat (very low) inflation (weekly hours ticked up slightly last month), with both earnings measures up 2.5% over the past year, while inflation’s running around 1%. ...

Underemployment, which includes about six million part-time workers who’d rather work full-time (and are thus under-employed), ticked down slightly but remains elevated at 9.7%. I’ve argued that an underemployment rate about a percentage point lower than this is consistent with full-employment, meaning there’s still slack left to be squeezed out of the job market. ...

As noted, GDP rose only 0.5% and productivity fell 1% in the first quarter of this year, obviously weak indicators. Now we can add a jobs report that’s off its recent pace. Is the U.S. economy, just about to hit year seven of an expansion that begin in mid-2009, heading toward recession?

That’s unknowable, but I would strongly avoid reading too much into these indicators. On a year-over-year basis, GDP is up about 2%, which is about its trend in the recovery. ...

In other words, filtering out some statistical noise, we’re growing at trend. Productivity is too low, but the job market is tightening and wage growth is getting a bit of a boost. We certainly want to take note of the weaknesses in the “high-frequency” data, but a month or a quarter does not a new trend make.

Dean Baker:

... The April job growth figure is lower than most economists had expected, but still quite fast given the pace of economic growth. Unless there is a marked speed up in the recovery to a pace of more than 2.0 percent, it is likely that job growth will slow further. It seems implausible that productivity growth will remain below 1.0 percent. ...

Also: Calculated Risk, White House.

Reducing Long-Term Unemployment

My latest column:

Reducing Long-Term Unemployment: Perfect is the Enemy of the Good: One of the most important economic challenges we face is reducing long-term unemployment. Presently, the percentage of people who have been searching for a job for more than 26 weeks is 26.7 percent. That’s down from the peak of 45.5 percent during the Great Recession, but long-term unemployment has been stuck around this percentage for the last 10 months and it is still higher than the previous post World War II peak of 24.9 percent in the early 1980s. 

Long-term unemployment takes a considerable toll on individuals and their families, and it has broader social and economic consequences as well. Yet Congress has all but ignored this problem. Republican opposition to new initiatives of any sort is one reason for the inaction from Congress, but it’s also true that we do not know for sure which type of policy works best. That makes it difficult for those in Congress who do favor action to make a strong case in support of a particular program. ...

This brings up a more general problem with our willingness to try and solve important social problems. We seem to believe that every program the government tries must work with near perfection or it isn’t worth doing. If a social program helps a large number of people, but a few people take advantage of it, those people are used to undermine the program in the eyes of the public. 

If we build a thousand bridges that serve important needs, but one of those is a “bridge to nowhere,” then infrastructure spending is a failure. If unemployment compensation and food stamps help a great number of people, but someone can be found who uses the programs as a way to avoid work, that becomes the focus. Of course we should try and fix the parts of any program that don’t work as intended, but we have to evaluate programs based upon their overall costs and benefits, not on isolated instances of failure. 

The private sector would not meet the standard of perfection many people impose on the government. ...

'Unemployment Rate Edges Higher as Prime-Age Workers Re-enter Labor Market'

Dean Baker:

Unemployment Rate Edges Higher as Prime-Age Workers Re-enter Labor Market: Self-employment has risen substantially since the ACA took effect.

The economy added 215,000 jobs in March, with the unemployment rate rounding up to 5.0 percent from February's 4.9 percent. However, the modest increase in unemployment was largely good news, since it was the result of another 396,000 people entering the labor force. There has been a large increase in the labor force over the last six months, especially among prime-age workers. Since September, the labor force participation rate for prime-age workers has increased by 0.8 percentage points. This seems to support the view that the people who left the labor market during the downturn will come back if they see jobs available. However, even with this recent rise, the employment-to-population ratio for prime-age workers is still down by more than two full percentage points from its pre-recession peak. Another positive item in the household survey was a large jump in the percentage of unemployment due to voluntary quits. This sign of confidence in the labor market rose to 10.5 percent, the highest level in the recovery to date, although it's still more than a percentage point below the pre-recession peaks and almost five percentage points below the peak reached in 2000.

Other items in the household survey were mixed. The number of people involuntarily working part-time rose by 135,000, reversing several months of declines. However, involuntary part-time work is still down by 550,000 from year-ago levels. The number of people voluntarily working part-time fell in March, but it is still 654,000 above its year-ago level.

One of the desired outcomes from the ACA was that it would free people from dependence on their employer for health care insurance, allowing them to work part-time or start a business if they so choose and get insurance through the exchanges. There has been a substantial rise in self-employment since the exchanges began operating in 2014. In the first quarter of 2016, incorporated self-employment was up by more than 400,000 (7.8 percent) from the same quarter of 2013. Unincorporated self-employment was also up by almost 360,000 (3.9 percent).

While the employment growth in the establishment survey was in line with expectations, average weekly hours remained at 34.4, down from 34.6 in January. This indicates that February’s drop in hours was not just a result of bad weather. As a result, the index of aggregate hours worked is down by 0.2 percent from the January level. This could be a sign of slower job growth in future months. ...

The average hourly wage rose modestly in March after a reported decline in February. There is zero evidence of any acceleration in wage growth. The average for the last three months increased at an annualized rate of 2.3 percent compared with the average of the prior three months. This is virtually identical to the increase over the last year.

On the whole this is a positive report, both because the economy continues to create jobs at a healthy pace and even more importantly because it indicates that people are returning to the labor market. The continuing weakness in wage growth is discouraging, but also should signal to the Fed that there is little reason to raise interest rates.

Job Growth in Last Decade Was in Temp and Contract

Neil Irwin:

Job Growth in Last Decade Was in Temp and Contract: ...new research ... indicates the proportion of American workers who don’t have traditional jobs — who instead work as independent contractors, through temporary services or on-call — has soared in the last decade. ...

Most remarkably, the number of Americans using these alternate work arrangements rose 9.4 million from 2005 to 2015. That was greater than the rise in overall employment, meaning there was a small net decline in the number of workers with conventional jobs.

That, in turn, raises still bigger questions about how employers have succeeded at shifting much the burden of providing social insurance onto workers, and what technological and economic forces are driving the shift. ...

This change in behavior has profound implications on social insurance. ...

Will the Donor Class Still be at the Front of the Line When the Election is Over?

I have something at MoneyWatch:

Will Election 2016 Soothe Americans' Fears?:... The extent to which employment can recover further depends in large part on the availability of jobs and the wage rate, both of which will be affected by the course of monetary and fiscal policy. If the Fed raises interest rates too fast and too soon, wages and employment will be suppressed, and valuable members of the workforce will never return.

If Congress continues to serve the interests of the donor class rather than the working class, fails to provide the economy with the infrastructure it needs and the jobs that come with it, and forces further reductions in social services through tax cuts and demagoguery over the national debt, the discouragement so many people feel will only get worse. ...

Events in this year's presidential campaign have made it clear that people are unhappy with the present state of the economy. They believe policy has been tilted too much toward the interests of the financial industry, big business and the wealthy -- and that they've been forgotten.

But these problems won't be solved by closing the door to international trade and immigration, by enacting huge tax cuts for the wealthy or by embracing politics that divide us as a nation.

Policymakers at the Fed and in Congress must do all that they can to create jobs and opportunity for those who feel overlooked and forgotten. People are speaking clearly this election cycle: They want jobs, they want opportunity, they want wages to go up and they want inequality in to go down. ...

[The beginning was changed by the editor...]