The Recession Marches On

Continued Job Loss Highlights Need for Job Creation Measures

The labor market shed more jobs in December, defying more positive expectations, and highlighting the need for job creation measures, writes Heather Boushey.

A man searches through job listings in the New York State Labor Department's Division of Employment Services in Brooklyn, NY on Wednesday, January 6, 2010. (AP/Mark Lennihan)
A man searches through job listings in the New York State Labor Department's Division of Employment Services in Brooklyn, NY on Wednesday, January 6, 2010. (AP/Mark Lennihan)

The labor market defied more positive expectations and shed another 85,000 jobs in December. The economy has shed 7.2 million jobs since the recession began in December 2007. And while the pace of job losses has slowed in recent months, employers continue to be unwilling—or unable—to hire.

Today’s report from the Bureau of Labor Statistics should be a wake up call to policymakers to continue to focus on policies to boost job creation and ensure that the nascent recovery is able to take hold. The American Recovery and Reinvestment Act has played a key role in stopping the hemorrhaging of jobs—when President Obama signed that legislation into law in February 2009, the economy was shedding about 20,000 jobs per day. Yet the private sector has yet to pick up the mantle of job creation. And overall domestic demand will remain weak without strong job creation, especially since consumers cannot borrow to maintain spending as they could in the last recovery.

We are now clearly at great risk of another job-loss or jobless recovery, which we cannot afford. Our most important agenda items should continue ensuring that states have sufficient funds to continue to keep employees and provide services, and making sure that the excruciatingly high numbers of long-term unemployed receive benefits. But Congress should also consider policies for direct job creation: directing additional money into youth and young adult employment through programs such as AmeriCorps, VISTA, YouthBuild, and the youth service and conservation corps; investing in child care, afterschool programs, and in-home health services for the elderly and disabled; and providing training for those serving America’s young people, elderly, and disabled.

Job losses continued to be fairly widespread in December. Construction shed the most jobs (53,000 jobs), with much of those losses occurring in heavy and civil engineering (18,000 jobs lost). Over the past year, 122,600 jobs have been lost in heavy and civil engineering, accounting for 13 percent of the year’s total job losses in the construction industry. Manufacturing also continued to shed jobs in December, losing 27,000 workers. This pace of job losses, however, is less than one-fourth as large as in the first half of 2009. Government shed 21,000 jobs in December with most of those—12,600—shed by the U.S. Postal Service. Education and health services continued to add jobs, with education adding 10,800 and health care adding 21,500 new jobs in December.

There are two encouraging signs of potential future hiring in today’s report. First, the temporary help sector continues to add workers. There have been 166,400 jobs added in temporary help since July, with an average of 48,700 workers added per month over the past three months. As figure 1 shows, rising temporary help is often an early indicator of increasing payroll employment in future months.

graph of change in temporary help

The average number of hours worked remained at 33.2 hours per week in December and overtime hours in manufacturing remained at 3.4 hours per week in December, which is half an hour higher than a year ago. The sustained trend toward higher hours indicates that employers continue to need employees to fulfill demand and, if demand continues, may need to hire new workers in the coming months.

The household survey, however, shows that workers are having greater difficulty finding employment. The unemployment rate held steady at 10.0 percent in December, but the labor force participation rate fell from 64.9 to 64.6 percent. Approximately 1.5 million workers exited the labor force over the past year, and the share of U.S. population with a job fell to 58.2 percent, a low not seen since 1983. The share of the population with a job has fallen by 4.5 percentage points since December 2007; if the employment rate had remained at its December 2007 level, there would be 6.4 million more adult men, 3.0 million more adult women, and 1.4 million more teens employed today than there actually are.

The typical unemployed worker is taking 20.5 weeks to find a new job, and the share of the unemployed who are “long-term unemployed”—that is, out of work and actively seeking a new job for at least six months—was 39.8 percent in December, both indicators hitting another record post-World War II high. Prior to this recession, the long-term unemployed had not risen above 26.0 percent. That prior peak occurred when the unemployment rate was 10.1 percent, 0.1 percentage points above where it was in December 2009.

There are still more than six unemployed workers vying for every job opening available. There are now 5.9 million workers (2.9 million men and 3.0 million women) who are not in the labor force, but report wanting a job. Of those, nearly a million (929,000) have given up their job search due to discouragement.

The job prospects are the grimmest for young workers. The unemployment rate for teenage men (ages 16 to 19) is 30.9 percent, and it is 23.1 percent for teenage women. Among men and women aged 20 to 24, the unemployment rate is 18.4 and 12.5 percent, respectively. This is higher than for prime age workers (ages 25 to 54): 9.6 percent of men and 8.1 percent of women report being unemployed.

We can see the challenges for young workers in the share of those seeking work who are new to the labor market. Most (63.7 percent) of those seeking a job in December had been laid off from their prior job or that job had been a temporary position. But there has been an uptick in the last couple months in the share of the unemployed who are new labor market entrants—primarily new graduates seeking their first job—up from 7.1 percent in October to 8.3 percent in November and December of those actively seeking employment.

Self-employment does not appear to be a viable option for the unemployed. The number of self-employed workers peaked at nearly 10 million in December 2006 and has fallen by nearly a million (842,000) since then.

The pain of the recession has not been borne equally across education groups. The unemployment rate for workers with less than a high school diploma was 15.3 percent in December, up by 4.1 percentage points over the year. The unemployment rate for workers with a bachelor’s degree or higher was 5.0 percent in December, up only 1.3 percentage points for the year (figure 2).

graph of employment rate by education level

Wages grew at an annualized rate of 2.7 percent in December, compared to a 1.8 percent annual grow in the rate of inflation, as measured by the Consumer Price Index for Urban Consumers. Yet weekly earnings only grew by 1.9 percent from December 2008 to December 2009 because of declining hours, barely keeping pace with inflation.

The hope was that the economy would quickly move from recession to recovery, but the reality is that the job recovery has yet to take off. Without additional fast action on the part of policymakers, we could be looking at an extended period of joblessness.

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Heather Boushey

Former Senior Fellow