The State of the U.S. Labor Market Recovery
It has been five years since the beginning of the Great Recession, and the labor market recovery, while far from great, has been steady. The total number of jobs lost between the business cycle peak in January 2008 and the trough in February 2010 exceeded 8.7 million and represented a 6.3 percent decline. Since then, the labor market has gained 5.5 million jobs. Nevertheless, we are still more than 3 million jobs short of the pre-recession level. While these numbers underscore the severity and depth of the recession, looking at a host of labor market indicators gives one a mixed message about where we are in terms of the recovery; even though there has been gradual improvement, there are still persistent weaknesses.
Total nonfarm payrolls have grown in each of the past 28 months. The growth in payrolls averaged 181,000 per month during 2012, a healthy number judging by the pace of the recovery. Moreover, with the exception of the government sector, employment growth was widespread across all major sectors of the aggregate economy. Over the last year, payrolls expanded every month by an average of 39,000 in professional and business services, 36,000 in education and health, 36,700 in trade, transportation, and utilities, 28,000 in leisure and hospitality, 9,000 in manufacturing, and 9,000 in financial activities. Even one of the hardest-hit sectors during the recession, construction, registered some expansion in the second half of the year, about 9,000 per month.
This gradual improvement in payroll employment is fairly consistent with the best measure of near-term-hiring demand we have: job openings. The Job Openings and Labor Turnover Survey (JOLTS), which is conducted by the Bureau of Labor Statistics, shows that job vacancies have rebounded significantly from a low of 2.2 million since the recession ended. According to the most recent release of the monthly survey in November 2012, there are almost 3.7 million vacancies that firms are looking to fill. This constitutes a significant improvement over the level at the end of the recession. However, vacancies are still about 20 percent below their pre-recession high of 4.7 million. Looking into the numbers for different sectors reveals that the construction and government sectors have relatively low demand and are dragging down the overall level of job openings.
Similarly, the unemployment data show a mixed picture of gradual improvement in some areas and persistent weaknesses in others. The unemployment rate came down from its cyclical high of 10 percent in late 2010 to its current level of 7.9 percent as of January. This decline accompanied a substantial fall in the number of unemployed workers, about 3 million. Even though the unemployment rate improved somewhat, albeit slowly, the employment-to-population ratio, another important gauge of the labor market, declined drastically during the recession and has been hovering around 58.5 percent ever since. In spite of the net job gains over time, employment growth did not keep up with population growth, leaving this rate at its lowest level since the late 1980s.
The major contributor to persistently high unemployment is the large fraction of long-term unemployed, those unemployed for six months or more. During recessions, this group of unemployed workers often expands, as it takes longer during such times for newly laid-off workers to find jobs. However, the expansion usually subsides and the pool of long-term unemployed workers starts declining once the recovery picks up. This time around however, long-term unemployment is more severe and persistent; not only has the share of long-term unemployed workers soared to unprecedented levels, it has also stayed at those high levels since. As of January 2013, 4.7 million unemployed workers have been out of work for more than six months. This constitutes 38.1 percent of all the unemployed. This is only slightly less than the peak of 45.3 percent, which was hit in the wake of the recession. The fact that this recession was a long one can partly explain the depth of the problem. Nevertheless, the fact that this ratio declined almost 5 percentage points over the last 12 months is encouraging.