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We Need Strong Policy Steps to Maintain Momentum in the Labor Market

January Jobs Numbers Show Recovery Is Picking Up Steam

SOURCE: AP/Chris Carlson

Job hunters line up to attend a job fair in California. The economy gained 243,000 jobs in January, and unemployment dropped to 8.3 percent, according to employment figures released by the Bureau of Labor Statistics.

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The nation’s economy is improving. The employment figures released today by the Bureau of Labor Statistics, or BLS, show that 243,000 jobs were added in January and unemployment dropped to 8.3 percent. The recovery plan the Obama administration installed the day it took office has now produced 23 straight months of private-sector job growth.

But we can’t afford to be complacent, and we can’t turn back to the policies that got us into this mess. Job growth is still too slow to make up for jobs lost in the Great Recession anytime soon, and even the modest momentum we have could be lost if government policies go in the wrong direction or Europe’s banking crisis spills over to the United States.

Moreover, there are nagging problems in the labor market that must be dealt with. Declines in public-sector employment continue to cancel out some employment gains in the private sector; the unemployment rates for young people, African Americans, and Hispanics remain at especially elevated levels; and long-term unemployment is at almost record highs.

In short, the recovery is continuing and building momentum. But it needs to accelerate. Strong policy actions can make sure this happens.

As a first step Congress should ensure we maintain the recovery we have made so far by passing a full-year extension of unemployment benefits and the payroll tax cut. These policies will put money in the pockets of middle-class consumers who will spend the funds, further boosting economic growth.

Private forecasters take the extension of unemployment insurance and the payroll tax cut seriously. In fact, when they run their models assuming these policies will expire, economic growth and job creation are considerably lower. Mark Zandi of Moody’s Analytics predicts that if UI and the tax cut aren’t extended, economic growth will take a full percentage-point hit in 2012.

Additional efforts such as boosting infrastructure spending on roads, bridges, and schools are also needed. Not only will these efforts help fill the jobs hole now and give further confidence to business owners considering hiring workers, but they will also improve our economy’s overall productivity and competitiveness.

To really get the economy going again, we need concerted efforts to rebuild the middle class—the true drivers of economic growth.

Today’s numbers suggest a broad recovery

According to the BLS report, private-sector job growth was 257,000 in January. The economy has now experienced 23 months of continuous private-sector growth and added 3.2 million total jobs since the labor market bottomed out in February 2010.

In addition, job gains occurred across a wide range of industries and sectors, indicating that a broad-based recovery is taking hold.

Manufacturing continues to add jobs as employment increased by 50,000 in January and 235,000 since January 2011, indicating that U.S. manufacturers are competitive in the global economy. And as President Barack Obama pointed out in his State of the Union address, manufacturing is an important source of good jobs that pay well and build a middle class.

Other sectors with large growth in January include construction (21,000 jobs), wholesale trade (14,000 jobs), retail trade (10,500 jobs), professional and business services (70,000 jobs), education and health services (36,000 jobs), and leisure and hospitality (44,000 jobs).

BLS also revised upward estimates of employment gains in previous months, meaning that the economy has created more jobs than previously thought.

Persistent weaknesses in the labor market threaten growth

Though job growth continues, the labor market has a long way to go before it reaches pre-recession employment levels. We’ve lost 5.6 million jobs since December 2007, when the Great Recession began. In 2011 the economy grew by an average of 152,000 jobs per month. At that rate of employment growth, we won’t fill the jobs gap until February 2015. If job growth accelerates to the average rate of 1994, when the economy expanded at a rate of 321,000 jobs per month, we’ll reach pre-recession levels in July 2013.

slow job growth after recent recessions

Continuing job losses in the public sector have been a drag on employment growth, and further austerity in this sector will continue to hamper growth. There were 14,000 government jobs lost in January and 276,000 jobs lost since January 2011. Federal employment declined slightly, losing 6,000 jobs in January and 44,000 for the year, but far more jobs have been lost at the state and local level. Local government employment—which includes teachers and public safety officials—decreased by 11,000 jobs in January and 161,000 jobs since January 2011. Meanwhile, state government employment held steady this month—increasing by 3,000 jobs—but has fallen by 71,000 jobs since January 2011.

Long-term unemployment also continues to be a stubborn and dire problem. The share of the unemployed who have been without a job for 27 or more weeks was 42.9 percent in January, down only slightly from a year ago (43.9 percent). The average duration of unemployment has increased to 40 weeks, up from 37 a year ago. This is a critical issue: The long-term unemployed are at risk of becoming permanently unemployed, as skills deteriorate and employers look at them with jaundiced eyes—unless action is taken to increase employment opportunities for them.

Further, unemployment is still above average for African Americans, Hispanics, and young people. The unemployment rate was 13.6 percent for black Americans and 10.5 percent for Hispanic Americans, both above the national rate. The unemployment rate for those between the ages of 16 and 19 was 23.2 percent and 13.3 percent for those ages 20 to 24.

Other signs of continued slack in the labor market include the fact that weekly hours remain at the same level they were last month, and temporary employment is increasing only at a slow rate. 

How Congress can get us to a robust recovery

Today’s job report came in above expectations, and it’s a clear sign the economy is slowly heading in the right direction. But the economy won’t return to full employment anytime soon if job creation doesn’t pick up speed.

Congress can take two major steps in this regard. First it needs to extend unemployment insurance and the payroll tax cut. And second it should pass other policies that will increase demand and boost growth and job creation such as the American Jobs Act being pushed by President Obama. According to Moody’s Analytics, this bill would add 2 percentage points to economic growth, add 1.9 million jobs, and reduce the unemployment rate by 1 percentage point by cutting taxes for the middle class and investing in middle-class necessities such as a quality education. The American Jobs Act, with its tangible impacts on the labor market, stands in sharp contrast to supposed jobs plans offered by some in Congress that cut regulations and taxes on the wealthy, recreating the trickle-down economics plan that failed to create robust job growth in the early 2000s.

It’s clear that the economy is slowly gathering steam and that the right kinds of policies—those that invest in the middle class—are needed to ensure the economy really gets going.

David Madland is the Director of the American Worker Project at American Progress.

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