The labor market started off 2012 with a nice surprise. The January 2012 employment situation report from the Bureau of Labor Statistics showed a labor market with all parts seemingly moving in a solid direction.  Payroll employment growth of 243,000 was matched by a decrease in the unemployment rate from 8.5 percent to 8.3 percent, strong household employment growth, and a growing share of the population with jobs (after removing the effect of BLS’ annual population reweighting). Furthermore, December’s jobs number was revised up by 266,000 (which included not only the routine monthly revision of earlier data, but also the annual benchmark revision, updated birth/death model adjustments, and new seasonal adjustment factors).

But it’s important to keep all this in context.  The U.S. labor market started 2012 with fewer jobs than it had 11 years ago in January 2001—a testament to both the enormity of the current labor market crisis as well as the very weak job growth of the 2000–07 business cycle. The jobs deficit is so large that even at January’s growth rate, it would still take until 2019 to get back to full employment.   We need reports this strong and stronger for the next several years to get back to a healthy labor market.

Long-term unemployment

The figure shows the share of unemployed workers who have been unemployed for more than six months, the maximum length of regular unemployment insurance benefits in most states. This measure increased from 42.5 percent to 42.9 percent over the last month.  Indeed, as the figure shows, there has been little discernible improvement in the last two years:  The share of unemployed workers who have been unemployed for more than six months shot up from an average of 17.5 percent in 2007 to 43.7 percent in March 2010, and has hovered around that point ever since, peaking at 45.5 percent in March 2011. The current level of 42.9 percent is more than 25 percentage points above the pre-recession level.  The fact that we still have large numbers of long-term unemployed is unsurprising given that the ratio of unemployed workers to job openings has been greater than 4-to-1 since January 2009.

Demographic breakdowns: Male and female unemployment rates now equal

For the first time since November 2006, when both men and women had an unemployment rate of 4.5 percent, men and women have equal unemployment rates: 8.3 percent. Men experienced a much larger increase in unemployment than women during the recession—peaking at 11.2 percent in October 2009—but have also seen a larger improvement so far in the recovery. For women, unemployment peaked roughly a year later, at 9.0 percent in November 2010.

Unemployment in January 2012 was 8.4 percent for those age 25 or older with only a high school education, and 4.2 percent for those age 25 or older with a college degree or more. While workers with higher levels of education have lower unemployment rates, workers at all levels of education have seen their unemployment rates roughly double since 2007, running counter to the notion that unemployment is high because employers are unable to fill their demand for workers with higher education credentials.

Considering additional breakdowns by age and race/ethnicity, we find that all major groups of workers have experienced substantial increases in unemployment over the Great Recession and its aftermath. However, young workers and racial and ethnic minorities have been and continue to be hit particularly hard.

• In January, unemployment was 16.0 percent among workers age 16–24, 7.4 percent among workers age 25–54, and 5.9 percent among workers age 55 and older (up 4.3, 3.4, and 2.7 percentage points, respectively, since the start of the recession in December 2007).
• Among workers younger than age 25 who are not enrolled in school, unemployment over the last year averaged 21.1 percent for those with a high school degree, and 8.9 percent for those with a college degree (reflecting increases of 9.1 and 3.5 percentage points, respectively, since the annual average of 2007). (Twelve-month averages are used here since seasonally adjusted data are not available for these series.)
• Unemployment in January was 13.6 percent for African American workers, 10.5 percent for Hispanic workers, and 7.4 percent for white workers (up 4.6, 4.2, and 3.0 percentage points, respectively, since the start of the recession).

Labor force participation and the employment-to-population ratio

The labor force participation rate was 63.7 percent in January, its lowest point since the downturn began. Remarkably, the labor force has grown by less than half a million workers since the recession started in December 2007, though the working-age population has grown by nearly 10 million in that time. There are currently 2.8 million “marginally attached” workers—workers who want a job, are available to work, but have given up actively seeking work.  If these workers were in the labor force and counted as unemployed, the unemployment rate would be 9.9 percent right now instead of 8.3 percent.

At a time like this, with the labor force not growing at a steady pace, arguably the cleanest measure for assessing labor market trends is the employment-to-population ratio, which is simply the share of working-age people who have a job. The ratio was 58.5 percent in January, also not far from its low of 58.2 percent last summer. The labor market still has substantial ground to make up: The employment-to-population ratio was 63.3 percent five years ago, in January 2007, before the recession started.

Underemployment: A negligible decrease

The “underemployment rate” (officially, the U-6 measure of labor underutilization) is the Bureau of Labor Statistics’ most comprehensive measure of labor market slack. It includes not just the officially unemployed and the marginally attached (jobless workers who want a job and are available to work but have given up actively seeking work), but also people who want full-time jobs but have had to settle for part-time work. This measure decreased from 15.2 percent to 15.1 percent over the last month. In January there were 23.8 million workers who were either unemployed or underemployed (8.2 million involuntary part-time workers plus 12.8 million officially unemployed and 2.8 million marginally attached). Racial and ethnic minorities have been particularly hard-hit by underemployment.

Hours flat and wages up modestly

The length of the average workweek was unchanged in January at 34.5 hours, still below the December 2007 level of 34.6.  Average hourly wages increased by 4 cents in January, and a 1.4 percent annualized rate over the last three months.  This remains far below the pre-recession growth rate (3.3 percent from December 2006 to December 2007), as persistent high unemployment has exerted strong downward pressure on wage growth. Average weekly wages grew more strongly at $1.38, and a 2.6 percent annualized rate over the last three months.

Industry breakdowns

As has been the case for more than three years, public-sector employment dropped. In January, federal government employment dropped by 6,000 and local government employment dropped by 11,000 jobs, while state governments added 3,000.  Since the recovery officially began in June 2009, more than half a million public-sector jobs have been lost, an enormous drain on the recovery.

Employment in restaurants and bars increased by 33,000 in January.  Restaurants and bars have now regained their pre-recession employment level, something few other sectors that saw big losses in the downturn have done.  Retail added 10,500 in January, slightly off the 17,400 average of the prior three months.  Health care added 31,000 jobs, well above its average growth rate of 15,000 in the prior three months, while temporary help services increased by 20,000, with December’s previously reported losses turning into an 8,000 gain in the revisions, which is good news since gains in temporary help services tend to signal future hiring for permanent jobs.

Construction added 21,000 jobs in January, following a 31,000 addition in December.  These strong showings were likely due at least in part to mild winter weather—in the three prior months, construction added only 7,000 on average.  Manufacturing gained 50,000 jobs in January, after adding 15,000 on average for the prior three months.  Most of manufacturing’s recent gains have been in durable goods.

Conclusion

The jobs deficit left from losses in 2008–2009 remains in excess of 11 million jobs (when you take into account both the 5.6 million fewer jobs we have now than we did before the recession started, and the fact that we should have added more than five million jobs to keep up with normal growth in the working-age population). To fully fill the gap in three years, by the start of 2015, we would have to add around 440,000 jobs every month between now and then.  But that’s not expected to happen.  The Congressional Budget Office projects that the unemployment rate will be 8.0 percent at the start of 2015, three years from now.  Millions are being needlessly condemned to joblessness for years to come.

Congress is now debating whether or not to renew extended unemployment insurance benefits.   The fact that there has been so little improvement in job-finding prospects for unemployed workers (see above figure) shows that it is much too early to begin cutting back on how long unemployed workers are able to receive benefits.  Congress should reject suggestions to cut back, and instead renew the program of extended benefits as it is until the end of 2012.

— Research assistance by Nick Finio, Natalie Sabadish, and Hilary Wething