Heidi Shierholz, EPI, on the true size of the employment gap

Employment growth of 2.5 million jobs per year for four years is what is required. This means a recovery package perhaps three times the current level. Here is an analysis from EPI.

Jobs Picture for August 7, 2009
By Heidi Shierholz 08-07-09
Economic Policy Institute

Recovery Act has significant impact, but long-term unemployment at 70-year high

by Heidi Shierholz with research assistance from Kathryn Edwards and Andrew Green

The July employment report released this morning by the Bureau of Labor Statistics detailed the 19th month of the recession, showing an additional 247,000 jobs lost in July, but unemployment was little changed, declining 0.1 percentage points to 9.4%. The pain in the real economy is continuing to deepen, but much more slowly than it had been.

The American Recovery and Reinvestment Act (or ARRA) is now providing a significant boost to the economy, most likely adding 3 percentage points to GDP growth in the second quarter, which likely created or saved around 720,000 jobs (see Recovery Act Starts to Turn the Tide by EPI economist Josh Bivens). The stimulus, therefore, is the primary reason why job losses in the last three months have averaged 331,000, down from the 645,000 average loss in the prior six months. Similarly, while job losses now total 6.7 million since the start of the recession in December 2007, those losses would have been much higher—around 7.5 million jobs—without the Recovery Act, and the July job losses would likely have been nearly double.

Unemployment declined 0.1 percentage points to 9.4% in July. However, the labor force also declined by 422,000, including the withdrawal of 246,000 adult men. If those missing workers were instead counted as unemployed, unemployment would have increased to 9.6%.

Unemployment has nearly doubled since the start of the recession, rising 4.5 percentage points from 4.9% in December 2007 to the current level of 9.4%. The increase in unemployment in the 19 months of the current recession is now equal to the total rise in unemployment during the nearly three years of the severe “double-dip” recession of the early 1980s, when it rose 4.5 percentage points from January 1980 to December 1982.

This recession is continuing to shatter records for long-term unemployment; with roughly six unemployed workers per job, job seekers are not finding work. In July, the number of workers who have been unemployed for over six months increased by 584,000 to 5 million, so that now 3.2% of the labor force has been unemployed at least six months, far surpassing the record high of 2.6% set in June of 1983. Currently over one-third (33.8%) of this country’s 14.5 million unemployed workers have been unable to find work for over half a year, an all-time high. While the pace of layoffs is slowing, unemployed workers are not finding jobs.

There are currently 14.5 million unemployed workers in the United States, but if the ranks of the “marginally attached” (jobless workers who want a job but have stopped actively seeking work and are therefore not counted as officially unemployed) and “involuntary part-time workers” (part-time workers who want full-time jobs but can’t get the hours) are included for an overall “underemployment” count, the figure rises to 25.6 million, which means nearly one in six U.S. workers (16.3%) is either un- or underemployed. This is a slight decline from 16.5% in June.

All major demographic groups have experienced large increases in unemployment over the course of the recession, but some groups are harder hit. In July, unemployment was 14.5% among black workers, 12.3% among Hispanic workers, and 8.6% among white workers (increases of 5.6, 6.1, and 4.2 percentage points, respectively, since the start of the recession). Unemployment declined to 10.5% for men, compared to 8.1% for women (increases of 5.5 and 3.3 percentage points since the start of the recession). Unemployment reached 9.4% for high school educated workers, and 4.7% for those with a college degree (increases of 4.8 and 2.6 percentage points, respectively, since the start of the recession). Younger workers are also particularly vulnerable—unemployment is 17.8% among workers age 16-24, 8.4% for 25-54 year olds, and 6.7% for those 55 and over (up 6.2, 4.4, and 3.6 percentage points, respectively, since the start of the recession).

Wage growth, which remained relatively strong for the first year of the recession, has weakened dramatically since December 2008. Growth in the hourly wages of production workers plummeted from 3.9% during the first year of the recession (December 2007-December 2008) to a 1.3% annualized growth rate in the last three months. Average weekly earnings had been faltering even more as workers’ hours have been cut back, though July saw a modest improvement so that nominal weekly earnings have also grown at 1.3% annualized rate in the last three months, though they had grown at 2.4% for the first year of the recession. As paychecks grow more slowly, even workers who keep their jobs are feeling the effects of this recession, which will slow any recovery by putting downward pressure on consumption growth.

It is important to note that the 6.7 million jobs lost since the start of the recession understates the magnitude of the hole in the labor market. To keep up with population growth, the economy needs to add approximately 127,000 jobs every month, or, across the full 19 months of recession, 2.4 million jobs. This means the labor market is currently 9.1 million jobs below pre-recession employment levels (see Chart). Furthermore, the economy has fewer jobs now than in April 2000, even though the labor force has grown by around 12 million workers since then.

Big losses continue in manufacturing and construction. Manufacturing jobs declined by 52,000 in July, for a total drop since December 2007 of 2.0 million jobs, 14.2% of that sector’s employment. July’s decline, however, was smaller than the average monthly loss of 172,200 jobs during the first half of the year. Construction jobs declined by 76,000 in July, for a recession-to-date total of 1.4 million jobs lost (18.3% of employment). July’s contraction was also significantly smaller than the average monthly losses of 102,800 in the first half of the year. That said, nearly one in five construction jobs has been eliminated during this recession.
Major losses also occurred in the professional and business services sector, which shed 38,000 jobs; but here, too July’s loss was much smaller than the 117,700 average monthly loss of the first half of the year. Retail trade was one major sector where the pace of losses worsened in July, shedding 44,100 jobs compared to an average loss of 27,100 per month in the second quarter.

Leisure and hospitality added 9,000 jobs after losing an average of 21,200 jobs per month for the first six months of the year, and health care added 19,600 jobs, slightly below its previous six-month average of 21,700 jobs gained per month. The federal government gained 12,000 jobs in July, while state governments lost 5,000 and local governments did not change, as budget deficits at the state and local level forced another round of cuts.

The index of aggregate weekly hours is a measure of total hours worked throughout the economy and presents a more comprehensive picture of the economic contraction than employment changes alone because it captures declines due both to job losses and reductions in hours for workers who kept their jobs. The index fell at a 3.9% annualized rate in the last three months and has fallen a total of 8.1% since the start of the—a substantially larger decline than in earlier recessions, including that of the early 1980s.

The July employment report shows that while the pace of decline is easing, the labor market is continuing to deteriorate. Unemployment will likely pass 10% by the end of the year, and unemployment spells for those who have lost their jobs will continue to lengthen from their already record-breaking levels. Today’s employment situation report shows that the recovery act is creating hundreds of thousands of jobs, but additional policy interventions are desperately needed to provide relief and generate jobs. These should include an immediate extension of federal unemployment benefits for the estimated half a million workers who will exhaust their benefits by the end of September.