Statement on December Employment Data

The economy created a meager 108,000 new jobs in December 2005, according to figures released today by the Bureau of Labor Statistics (BLS). This was well below the number most analysts had expected and far short of what we need to make up for the historically weak job growth in this most recent recovery. The rate of growth has only been above average in eight out of the 57 months of this business cycle, and December was not one of them. The clearest signal that things have not gone right for middle-class families recently is the fact that consumer debt in all of its forms reached ever new highs. Unfortunately, December’s disappointing result has been the rule more than the exception since March 2001, when this business cycle began. America’s middle-class families need more and better jobs, so that they can begin to dig out from underneath record amounts of debt and start improving their families’ living standards. One month alone will not do the trick, but a prolonged strengthening of the labor market could help a struggling middle class.

The first indicator that the labor market performance of this business cycle has been nothing to write home about is its abysmally low job growth. Since March 2001, jobs grew by 0.03 percent per month, about one-seventh of the historical average. This employment record is still the weakest of any business cycle since World War II.

An additional sign that the economy has failed to create enough good jobs is the fact that the employed share of the population in December was 62.8 percent, well below the 64.3 percent of March 2001. If the employed share of the population had remained the same since March 2001, there would have been 3.5 million more jobs in December. If these people were added to the labor force, the unemployment rate would have been 6.7 percent, instead of the 4.9 percent reported by the BLS today.

Another sign of the weak labor market is the fact that whenever firms are hiring at an above average pace, the labor force also grows quite rapidly. The labor force is a subjective measure. Everybody who has a job, is self-employed or who is looking for a job is counted in it. When firms are not hiring, people give up looking for a job, reducing the size of the labor force or at least letting it grow more slowly than would have otherwise been the case. The opposite is true when firms are hiring at an accelerated pace. People who had previously given up looking for a job start their searches anew and thus quickly swell the size of the labor force. In the eight months of this business cycle, when firms hired above average amounts of new workers, the labor force grew on average by 269,500 jobs. In comparison, in the other 49 months, the labor force grew on average by only 88,673 jobs. This also explains the often observed oddity that we can see weak employment growth as we did this month, but see the unemployment rate drop as we did this month.

Lastly, because firms are hiring at a comparatively slow pace and there are clearly many workers looking for jobs that they cannot get, there has been no pressure for firms to raise wages. By November 2005, the last month for which data are available, inflation-adjusted weekly wages were still below those of March 2001. Wage growth before inflation remained again relatively subdued in December. With average weekly earnings increasing just 0.01 percent there is a good chance that real wages dropped again.

After years of a sub-par labor market, America’s middle class has a lot of catching up to do in terms of new and better paying jobs. America’s middle-class families need to see substantially more jobs and higher wages if they are going to dig themselves out from under the mountain of debt piled up over the past few years.

Christian E. Weller is Senior Economist at the Center for American Progress.