Slow Progress for American Workers

Latest Unemployment Figures Show Small Gains

Today’s jobs numbers offer small comfort for American workers, employed and unemployed alike. The most recent figures from the Department of Labor show that the private sector added a total of 71,000 jobs in July. Overall, payroll employment fell by 131,000 due to the layoff of 143,000 temporary U.S. Census Bureau workers last month, and continued layoffs by state and local governments. With today’s downward revision, the economy has added 630,000 private sector jobs in 2010, yet the pace of job creation has slowed down since the spring as the sharpest private sector job gains this year occurred in March and April.

What’s behind the top-line figures? Well, the good news is that the manufacturing sector continues to add workers, adding 36,000 jobs last month for a total of 183,000 new jobs since its low point in December 2009. Motor vehicles and parts manufacturing grew especially strong in July, adding 20,700 new jobs. But the bad news is that while this is an improvement over this time last year, at the pace of private sector job creation over the past three months it will take just under 13 years to regain the jobs lost since the Great Recession began in December 2007.

Fortunately, steps taken by policymakers are helping to turn the economy around. New estimates out this month provide more empirical data that shows how effective the American Recovery and Reinvestment Act has been in saving and creating jobs. Economists Alan Blinder and Mark Zandi estimate that this legislation has saved or created 2.7 million jobs and that if it had not been put into effect, unemployment would stand at 11 percent and job losses would have totaled 10 million.

On top of this, Blinder and Zandi estimate that if nothing had been done to address the financial crisis—no Troubled Asset Relief Program, no bailouts of American International Group Inc, and no investment in the auto industry—our economy would have 5 million fewer jobs than we do today and unemployment would be sharply higher, at 12.5 percent. These are significant victories in the battle against the consequences of unchecked conservative laissez-faire policymaking that led to the U.S. housing and credit crises and the Great Recession, but they are also small comfort for those still unemployed or worried about their jobs.

That’s why continued government action is necessary. Earlier this week, the Senate passed a $26 billion state aid package that will provide $16.1 billion to extend Medicaid funding to states, known as FMAP, for six months, and $10 billion to keep 138,000 teachers in the classroom come September, rather than on the unemployment line. The House of Representatives is planning to return briefly amid their August recess next week to vote on this bill and send it to President Obama for his signature. These dollars are critical for employment: state and local governments have been working against economic recovery through increased layoffs in recent months. State governments shed 10,000 workers and local governments shed 38,000 workers in July. Both have been shedding workers for two years now.

Slow job gains and lackluster wage growth combined will limit the strength of the economic recovery moving forward. Unemployment remained at 9.5 percent in July, and over the last quarter the annualized rate of wage growth for production and nonsupervisory employees was 2.1 percent, above the annual rate of inflation of 1.1 percent as measured by the Consumer Price Index, Lackluster hiring and slow wage growth create a chicken-and-egg story: The typical U.S. family earning less than $100,000 per year derives 80 percent of their income from employment. Without a robust recovery in employment and earnings, families will be constrained in their spending, especially since due to lower home values most of us can no longer use our homes as ATMs.

There appears to be little pressure building in the private sector for strong growth in future hiring. After sharply rising in late 2009, the hiring of temporary help slowed considerably early in 2010 and has been essentially flat for two months now. Average hours of production and nonsupervisory employees rose from 33.4 in June to 33.5 in July, which is where they were in May. While rising hours is encouraging, the level remains about where it was in late 2008.

The labor market data continue to show that those without a job are having an exceptionally hard time finding new employment, but there are also more worrisome signs of an increase in newly unemployed workers. The number of workers who have been unemployed for five weeks or less was higher in July than in any month since January, consistent with recent reports of increasing new applications for unemployment insurance benefits. At this point in the economic recovery, we should not be seeing a rise in the newly unemployed. There are also 6.6 million workers who have been out of work and seeking a job for at least six months, and as a share of the unemployed, this continues to be at near-record highs, at 44.9 percent in July.

While private sector employment is on the rise, the household survey shows that the number of people reporting being employed fell for the third straight month in July, with 159,000 fewer employed. The employment-to-population ratio also fell again in July, down to 58.4 percent, back where it was in January. The employment rate is trending downward more so for women than for men. Among adult women, the employment-to-population ratio fell to 55.4 percent in July, only a tenth of a percentage point above the Great Recession low, while for adult men, remained at 66.9, six-tenths above the historic low of 66.3 hit in December 2009.

Congress and the Obama administration took steps this year and in 2009 to put our economy on the right track after inheriting the worst ravages of the Great Recession, which began in 2007. The evidence is clear these policies certainly helped. But we still have work to do. With much of the employment data beginning to take an "L" shape—not getting worse but also not necessarily improving—there continues to be an important role for policymakers to spur the economy. The state aid package that passed the Senate this week is an important step forward, but Congress should consider additional steps to get people back to work, such as passing the small business bill now stalled in the Senate because of conservative filibuster threats, direct job creation, and ramping up our national service programs.

Heather Boushey is a Senior Economist at American Progress.