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

Job seekers attend the New York Department of Citywide Administrative Services job fair in New York, November 2, 2016.

On Friday, the U.S. Bureau of Labor Statistics, or BLS, will release its “Employment Situation Summary” for the month of November. After faster than expected gross domestic product growth reported in late November and the BLS’ October jobs report showing a continued tightening of the U.S. labor market, November’s report will be the final indicator of where the economy is headed as we go into 2017. The Federal Reserve’s decision to delay rate increases at its Federal Open Market Committee, or FOMC, meeting shortly before the election increases expectations of a rate increase when the FOMC meets again in early December. After 73 months of positive job growth, the Fed has indicated that it will soon begin to increase interest rates in order to prevent high inflation.

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. This can guide our understanding of how much more room the economy still has to grow balanced against inflationary pressure in a tight labor market. Among the indicators in the November 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 so that improvements to the labor market are broadly shared. For example, although the headline unemployment rate remained basically steady in November, the rate for African Americans continued to be significantly higher at 8.6 percent.

Below is an overview of the trends to watch before the release of November’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 181,000 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 fall, and October 2016 marked the 25th consecutive month that the U-3 rate was less than 6 percent. While this does mark significant progress in the recovery from the Great Recession, 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 ages 25 and 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 a positive direction, the employment-to-population ratio has a way to go before reaching prerecession levels. The employment-to-population ratio was 59.7 percent in the October jobs report and has been less than 60 percent since March 2009, while it was in the range of 62 percent to 64 percent during most of the 2000s expansion.

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 October, the number of involuntary part-time workers was unchanged at 5.9 million.

Overall job growth in this recovery continues to be tepid, and we still haven’t caught up to prerecession levels on many indicators of labor market robustness which would indicate that the labor market is sufficiently tight enough to sustain wage growth. The percentage of the population in the labor force has increased since the height of the recession and is currently at 62.7 percent, but it still hasn’t matched the low levels at the height of the last expansion of around 66 percent.

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

The gains from the recovery have been spread unequally between different demographics, and those with historically worse labor market conditions continue to face higher unemployment rates with long-term detrimental effects. While the overall unemployment rate fell from 10 percent to 4.9 percent between October 2009 and October 2016, the rate for African Americans only dropped from 15.8 percent to 8.6 percent during the same time frame. Focusing on those groups that continue to have room for improvement can be a benchmark for the health of the U.S. labor market, and expanding their opportunities in the labor market can be a source of future economic growth.


As the economy continues to recover from the Great Recession, it’s important to be aware of what indicators we use to evaluate the health of the labor market, as well as to recognize that there is still room for the labor market to continue to tighten so that it expands opportunities to more workers. Although some indicators appear to have recovered, it is worth remembering that not all groups have experienced the recovery in the same way. Indicators such as the U-6 unemployment rate and the employment-to-population ratio show that there is still room to grow to meet previous eras of a strong labor market.

There seems to be little reason for the Fed to raise rates at this juncture. In fact, if we really want a high-pressure economy with tight labor markets and rising wages, fiscal expansion is in order. If it is done effectively—and if we avoid squandering our fiscal capacity on tax cuts for upper-income households or infrastructure tax credits that will do little to increase aggregate demand—the recovery can be extended, and middle-class households can continue to regain lost ground.

Kate Bahn 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.