Where is the Employment Recovery?
The popular media has been giving a lot of lip service to any glimmer of improvement in the labor market. I like to go a bit deeper than the conventional headlines to understand what is really going on and believe that a longer-term perspective is invaluable. The chart at left shows the change in employment since the start of every recession going back to 1948. The current recovery, or rather lack of recovery in employment is without precedent. Today’s unemployment rate is rather deceptive in that we have a significantly declining labor participation rate, meaning more and more people are leaving the workforce. If the labor participation rate, meaning the percentage of the population working or looking for work, was the same today as at its peak in February 2000, the unemployment rate would be 13% versus today’s 7.6%. Since the 2000 high, 9.83 million people have left the labor pool.
Fiscal tightening has also been affecting the labor market, but more dramatically than one would expect. State and local government spending represent the second largest GDP component after consumer spending. Municipal government jobs pay on the order of 45% more than private sector jobs, meaning that the loss of two state and local jobs is roughly equal to the loss of three jobs in the private sector in terms of lost income.
The quality of new jobs has been decidedly poor as well. In the first half of 2013 4.2 part-time positions were added for every 1 full time. The June employment survey reported a loss of 240,000 full-time jobs but an increase of 499,000 part-time jobs. The report also revealed that 38% of the 195,000 new payroll jobs were in the lower paying sector of leisure and hospitality, which is four times that sector’s share of total employment. In contrast, the number of manufacturing jobs, which pay almost twice as much as leisure and hospitality positions, are still well below pre-recessions levels and continue to be in a long-term downtrend.
The lack of both quantity and quality of employment opportunities is visibility evident in the chart at right showing household income levels in 2011 dollars. With nearly 70% of GDP coming from consumer spending, the falling trend in income is a notable headwind to growth.
Bottom Line: Economic growth depends primarily on two things: labor and capital. With a shrinking labor pool and falling wages it continues to be more and more difficult to generate the type of growth the United States has historically enjoyed.
