October 5, 2014 - Urbanomics
Is the US labor market at long last firing on all cylinders? Measured in terms of employment gains and a declining unemployment rate, conditions are clearly improving. Following a relatively weak result the month before, the Bureau of Labor Statistics’ jobs report for September showed a net payroll employment gain of 248,000. Thus far into 2014, payrolls have expanded by a monthly average of 227,000 jobs, the best run in fifteen years. The unemployment rate has fallen by 70 basis points over the same period, dropping below 6.0 percent for the first time since the Great Recession. An alternative indicator of labor market health, the Bureau’s early September update on job openings shows a spike this year in the number of available positions.
While the headline numbers from the most recent employment report point to improving conditions, the jobs recovery is still qualified along other dimensions. The drop in the unemployment rate coincides with persistent weakness in the participation rate, which tracks the share of the adult population that is either working or looking for work. The participation rate fell to its lowest level in 36 year in September’s report, capturing the impact of an aging workforce as well as cyclical trends.
Whether participation trends reflect structural or cyclical features of the market matters critically for our assessment of the employment recovery and how policymakers should respond. A recent research brief from the Federal Reserve Bank of San Francisco† finds larger declines in participation in states in with larger job losses, from which the Fed’s economists infer a strong cyclical component in the lower participation numbers. Adding support to the assessment, a narrower measure of participation for the prime working-age Americans – those between 25 and 54 – fell to a 30-year low over the summer. There is plenty of room for debate. Another recent paper from the Federal Reserve Bank of Cleveland‡ concludes that structural forces dominate.
A less academic measure of current trends in labor force, the September jobs report shows that wages remain stagnant. Measured in terms of average hourly earnings, private sector wages declined by a penny from August to September. As compared with a year earlier, nominal wages increased by just 1.95 percent, barely ahead of the Bureau’s most recently report measure of inflation and short of its measure of apartment rent growth.
† Will Labor Force Participation Bounce Back?
‡ Labor Force Participation: Recent Developments and Future Prospects
Sam Chandan, PhD, Global Head of Strategy and Research, has an ownership interest in Capri. He holds an ownership interest in Chandan Economics LLC, which is engaged by Capri under a consulting agreement.
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