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Most New Jobs Don’t Pay a Middle-Class Wage

SOURCE: AP/Mark Lennihan

A "Help Wanted" sign is displayed at the Black Dog Bakery in Tisbury, Massachusetts, on Tuesday, October 15, 2013.

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This column was originally published on MarketWatch.

Today, the Bureau of Labor Statistics released new data about the October employment situation that show the surprising resilience of U.S. labor markets—even as extreme conservatives in Congress risked economic calamity by hijacking the political debate. The U.S. economy added 204,000 net new jobs in October, even with the loss of 12,000 federal workers from the public service. Although the government shutdown disrupted administration of these economic surveys, the data do not appear to be systematically affected, according to the BLS.

While providing a bright spot in the recent economic data, underlying statistics in the report reveal that the U.S. economy is far from being out of the woods. At 7.3 percent, the unemployment rate remained basically unchanged in October, though this constancy belies 720,000 people exiting the labor force—an indicator used in calculating the unemployment rate—which would tend to understate the severity of unemployment. The report provides other, more indicative measures of a widespread unemployment problem.

The broadest measure of employment in the United States—the share relative to the overall civilian population level—stood at 58.3 percent in October, down from nearly 63 percent at the start of the Great Recession, according to data in today’s release. Since the labor market hit bottom in February 2010, this overall employment ratio has barely budged, indicating there are more than 10 million people in “disguised” unemployment in the U.S. economy.

Even at a gain of 204,000 jobs this month, overall employment is not growing fast enough to restore the economy to full employment in any reasonable timeframe. We are now nearly six years into the United States’ “lost decade,” and at this pace, it will be many years before we get back to a healthy, recovered labor market. And of the jobs created in October, more than half were in parts of the economy where wages, productivity, and prospects for career advancement are low. A full 57 percent of new jobs gained since the labor market began growing in February 2010 have come from the retail trade, leisure and hospitality, health care services, and temporary jobs, paying an average of $15.71 for nonmanagement workers. Given the poverty pay and infamous working conditions in many of these occupations, it is no wonder that in the past year, workers have organized nationwide strikes against fast-food companies and big-box-store employers for a living wage.

The pace and quality of job growth is particularly foreboding for two key demographic groups: young workers in their early careers, often referred to as “Millennials,” and highly experienced late-career workers nearing retirement age. Young workers faced an unemployment rate of 15.1 percent in October, more than double the rate for the overall population. A spell of unemployment at this stage of a person’s career is especially damaging, as it can permanently depress an individual’s skills accumulation and lifetime earnings trajectory—a loss of about $22,000 on average over 10 years.

With unemployment for workers age 55 and older standing at 5.4 percent in October, compared to 3.2 percent prior to the Great Recession, many late-career individuals worrying about their own job prospects now also find themselves contemplating how to juggle planning for their retirement saving, providing for their parents’ long-term care, and moving their children back into the house. Latino and African American populations are also bearing a disproportionate share of the unemployment, with rates ticking up in October to 9.1 percent and 13.1 percent, respectively, as people from other demographic groups move forward in employment.

The prospects of prolonged underperformance of the U.S. labor market is not just a problem for the unfortunate souls and their families facing unemployment and diminished incomes. Pioneering research is illustrating the profound long-run costs from acquiescing to extensive unemployment to the supply side of the U.S. economy. Federal Reserve economists estimate that prolonged unemployment is costing the U.S. economy approximately $1 trillion per year. In other words, not confronting unemployment head-on today undercuts the potential for the U.S. economy to quickly grow now and in the future.

Fortunately, this path is not fated in the American “Book of Life.” Congress can do two simple things to start improving this situation, reasonable solutions that enjoy broad public and bipartisan support. First, replace sequestration spending cuts with a focus on jobs and investment today—and higher productivity and deficit reduction over the longer term. Second, pass comprehensive immigration reform with a path to citizenship, which the Senate has already passed, and for which a bipartisan bill is waiting for a vote in the House—a policy move that is not only right, but would boost employment, economic growth, and the number of taxpayers.

Adam S. Hersh is an Economist at the Center for American Progress.

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