Article

American Workers See New Lows at the Year’s End

With employment declining, it is clear that economic growth alone will not translate into rising fortunes for America's workers, says David Madland.

New employment numbers released this morning by the Bureau of Labor Statistics show the smallest increase in job growth since August 2003, over four years ago, and the highest unemployment rate in over two years. The increase in unemployment to 5.0 percent in December, paired with a meager 18,000 jobs added to the economy, make 2007 the weakest year for job growth in the past 4 years. The monthly employment figures are the latest sign of a weakening economy, and mark the end of a year of relatively gloomy news for workers.

The increase in the unemployment rate to 5.0 percent in December 2007 from 4.7 percent in November 2007 is also the biggest one-month jump since October 2001. And during 2007, unemployment increased 5.0 percent from 4.4 percent, the biggest yearly increase in unemployment since December 2001, when unemployment increased by 1.8 percent.

During 2007, the economy added a meager 1.3 million jobs, and job growth was less than 1 percent. By contrast, the economy in the late 1990s was adding 3 million jobs per year and job growth was over 2.5 percent. Even in 2006, also a relatively weak year for employment, job growth was 1.7 percent, the economy added 2.3 million jobs, and unemployment decreased 0.4 percent.

The weak job market for both December and 2007 overall was driven by job losses in construction, manufacturing, and retail, with the housing market continuing to exert a downward pull on the economy. Job gains in healthcare, restaurants, and local government weren’t enough to compensate for these loses.

Manufacturing lost 31,000 jobs for the month, continuing a long decline. Employment in the sector decreased by 1.5 percent, or 212,000 jobs, during 2007, in contrast to only a 0.5 percent decrease during 2006.

Retail trade shed 24,000 jobs in December, also ending a year of weak job growth, where employment grew by only 0.3 percent. This is, however, an increase from 2006 growth, when retail employment declined by 0.2 percent.

Construction lost 49,000 jobs in December, and for the year employment in the sector shrank by 195,000 jobs—a 2.5 percent decline over the course of the year. This is down from 2006, when construction grew by 1.8 percent. Residential construction employment—a component of the construction sector and a primary area affected by the housing slump—fell nearly 7 percent for the year, while in 2006 it grew by 2.0 percent.

The slumping housing market has also caused job losses in other subsectors such as building material and garden supply stores, where employment continued to fall, constricting by 2.7 percent for the year, compared to 2006 when it grew by 1.1 percent. Credit intermediation—a subsector that includes most housing-related finance—lost 7,000 jobs in December and saw a total 5.4 percent decline for the year. During 2006, employment in this subsector grew by 2.3 percent.

Employment did continue to grow in the healthcare industry, which added 28,000 jobs in December and over 350,000 jobs for the year. The industry grew at 2.8 percent during 2007. Employment in food services also increased in December, adding 27,000 new jobs, and bringing the 2007 total to 300,000 additional jobs. Local government added 24,000 jobs in December, but for the year employment there decreased, creating a net loss of 57,000 workers. And monthly growth in these areas was still not enough to compensate for job losses in the rest of the economy.

The one spot of good news this month is that workers’ earnings edged up slightly. Yet once inflation is taken into account, workers are unlikely to see any gains for the year. For the month, average hourly and weekly earnings increased by 0.4 percent and over the year, average hourly earning rose 3.7 percent and average weekly earnings increased by 3.4 percent. Inflation for the first 11 months of the year (December figures are not yet available) has been 4.2 percent—high enough to erase the wage gains.

The lesson to take away from today’s labor market figures, as well as all previous ones of this business cycle, is that economic growth alone will not translate into rising fortunes for America’s workers. Policymakers need to find ways to crank up the country’s job engines and translate productivity growth into strong wage gains for American workers.

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Authors

David Madland

Senior Fellow; Senior Adviser, American Worker Project