The State of the U.S. Labor Market: Pre-November 2016 Jobs Release

A construction worker works on a house frame for a new home in Chula Vista, California.

On Friday, the U.S. Bureau of Labor Statistics will release the employment report for the month of October. After a softer than expected September jobs report, encouraging new CPS data on wage growth, and high third-quarter GDP growth, this month’s data will be the final indicator of where the economy is headed before the election. At this point in the recovery, each new data point is important as the Federal Reserve continues to debate how to improve the labor market without touching off inflation. The Fed held off raising rates in their meeting yesterday—a largely unsurprising decision as their meeting was just a week before election day. This decision likely increases expectations of a rate increase when the Federal Open Market Committee meets again in early December. However, low inflation and the beginnings of much-needed real wage growth clearly signal that based on macroeconomic factors, a rate increase would be premature.

Although the headline unemployment rate—otherwise known as U-3—is the most frequently cited indicator of labor market health, other factors can provide a fuller picture of how the economy—particularly the labor market—is performing. Among the indicators in the October jobs report that deserve attention are the prime-age employment-to-population ratio, the number of people working part time for economic reasons, and the U-6 unemployment rate. Each of these indicators gives important context on the health of the labor market. Additionally, it is important to keep in mind the racial differences within these indicators. For example, although the headline September unemployment rate was low at 5.0 percent in August, the rate for African Americans was significantly higher at 8.3 percent. Below is an overview of the trends to watch before the release of October’s data.

Although the unemployment rate is at prerecession levels, other labor market health indicators have yet to recover fully

So far in 2016, the labor market has seen robust job growth at an average rate of about 178,000 jobs per month. However, average growth in 2015 was larger, adding an average of 229,000 jobs per month. Meanwhile, the number of long-term unemployed workers has slipped lower than it was last summer, and September 2016 marked the 24th consecutive month that the U-3 rate was less than 6 percent. While this does mark significant progress in the recovery, it is important to remember that there are broader measures of unemployment that paint a clearer picture of the U.S. employment situation.

Employment-to-population ratio

The employment-to-population ratio measures the share of employed people in the United States. This differs from the labor force participation rate, which measures the share of all people who are employed and formally unemployed. The prime-age employment-to-population ratio measures the share of people between the ages of 25 to 54 who are employed. The prime-age measure is often seen as a better indicator of labor market health, since it is unaffected by the large number of baby boomers who may be retiring.

Both the prime-age and the overall employment-to-population ratio have been steadily increasing since 2011, while the labor force participation rate declined and now remains largely stagnant. This growth of the employment-to-population ratio indicates that employment levels are increasing. However, despite this growth in the positive direction, the employment-to-population ratio has a way to go before reaching prerecession levels.

U-3 vs. U-6

The U-3 unemployment rate does not capture the people who want jobs but have given up looking for work or the people who would like full-time work but can only find part-time positions. Perhaps the most comprehensive unemployment measure, U-6 alleviates this problem by including marginally attached workers—those who have recently looked for work but are not currently looking—and part-time workers who would prefer full-time work. U-6 is always higher than U-3, but the gap grew much larger than usual during the recession and has remained above or near prerecession records over the course of the recovery.

The number of people working only part time for economic reasons remains very high

The number of workers who are employed only part time for economic reasons—meaning that they are unable to find full-time work despite wanting it—indicates slack in the labor market. If workers are part time because their hours are cut or because they cannot find a full-time job, that indicates a labor market that is less favorable for all workers. In September, the number of involuntary part-time workers decreased by 159,000, offsetting the August increase of 113,000 part-timers.

Wage growth finally improves, but more progress is needed

Last month’s new data from the U.S. Census Bureau shows that, finally, American households are seeing their incomes rise after the Great Recession. In 2015, the median household income rose by 5.2 percent to $56,516 per year, a much-needed boost after three years of statistically insignificant changes. While this is welcome news, it is important to remember that much more work is needed to keep middle-class incomes growing at a healthy pace.

Overall job growth in this recovery has been puzzlingly slow relative to previous economic expansions and to other indicators in this expansion. During the economic expansion of the 1990s, for example, the economy added at least 250,000 jobs per month 49 times. During the current expansion, which has now lasted more than half as long, there have been only 23 months of job growth greater than 250,000—including the additional, abnormal hiring of surveyors involved with conducting the decennial census. One major reason for the sluggish employment growth has been a lack of government hiring, especially by state and local governments. The nation has ground to make up in hiring teachers, police officers, and firefighters, as the property tax revenues local governments rely on to finance these positions are only now recovering from the housing crash.

The unemployment rate has not recovered to prerecession rates for all demographics

The Great Recession affected different demographic groups to different extents, with African Americans among those hardest hit. This will come as no surprise to anyone paying attention to the economic landscape, but the absence of labor market recovery for African Americans remains both a shock to observers and an untapped opportunity for future growth. While the overall unemployment rate fell from 10 percent to 5 percent between October 2009 and September 2016, the rate for African Americans only dropped from 15.8 percent to 8.3 percent during the same time frame. Accounting for wealth lost when the housing bubble burst, it is even more apparent that losses to African American communities are compounded by a lagging labor market recovery.


Although the unemployment rate has seen a strong recovery, other indicators of labor market health show room for improvement. The October employment data could help paint a picture of a broader labor market recovery if the indicators discussed here demonstrate positive growth. The recovery of these indicators could also signal an interest rate hike in the near future, as the Fed will be watching closely to decide whether the economy is strong enough to handle an interest rate increase in the near term. Just as important as multiple labor market indicators, however, are demographic discrepancies, which are crucial to cultivating an informed perspective on the economic outlook. Although some indicators appear to have recovered, it is worth remembering that not all groups have experienced the recovery in the same way. Working toward inclusive prosperity requires understanding inequities and crafting policy with all people in mind, especially at the powerful Federal Reserve.

Michael Madowitz is an Economist at the Center for American Progress. Gregg Gelzinis and Annie McGrew are Special Assistants for the Economic Policy team at the Center.