The State of the U.S. Labor Market: Pre-August 2017 Jobs Release

President Donald Trump holds a rally near a coal barge in Cincinnati in June 2017.

On Friday, the U.S. Bureau of Labor Statistics will release its “Employment Situation Summary” for the month of August. Since the employment recovery began in February 2010, the U.S. economy has added more than 16 million jobs, and the steady tightening of the labor market has finally started to deliver some wage growth for workers, with wages increasing 2.5 percent over the past year. Unfortunately, President Donald Trump has not furthered this economic progress—especially not for the geographic and professional constituencies for whom he promised to fight during the 2016 campaign, namely manufacturing workers in the Midwest.

Research from the Center for American Progress shows that the labor market in the Midwest has been particularly hard-hit by policies that undercut organized labor, with problems arising years before the Great Recession. Since 2000, Midwestern workers have seen the lowest wage growth of any region in the United States. President Trump campaigned vigorously in this region, vowing to bring back good manufacturing jobs and fight for workers in these communities. Yet more than seven months into his presidency, Trump has not signed any major piece of legislation to make good on these promises, and his conventional economic agenda continues to work against workers’ rights. His only actions on jobs have been small one-off deals with employers that don’t live up to the hype, such as his deal with Carrier Corp., or that would be nothing more than a high-cost corporate giveaway, such as the potential deal with Foxconn Technology Group. To put these actions into perspective, the Carrier deal, which was negotiated before he was sworn in, promised to save about 1,000 jobs. The Foxconn deal announced in July would bring 3,000 to 13,000 jobs if it moves forward.

Setting aside the fact that the Carrier deal has left workers who are still facing layoffs in the plant feeling betrayed and that the Foxconn deal would be very expensive for Wisconsin taxpayers, the number of jobs included in these deals is miniscule compared with the hundreds of thousands of net job gains in the U.S. economy every month thanks to the labor market trends started under President Barack Obama. If President Trump wants to build on President Obama’s labor market successes, he must do more than announce a few tiny sham deals.

In advance of Labor Day this coming Monday, it is also worth remembering the important economic contributions that unions continue to make on behalf of American workers. Studies show that union wages are typically 10 percent to 20 percent higher than nonunion wages. Union workers also have a higher rate of access to benefits and have higher-quality benefits than nonunion workers. Substantial research by economists at Harvard University, Wellesley College, and the Center for American Progress has shown that union membership is associated with higher future wages for one’s children. Thus, unions are not only important for increasing the wages of middle-class workers in the present, but they are also a key tool for intergenerational mobility. Unions are an important part of a thriving middle class, and actions taken to limit their power only further exacerbate wealth inequality.

This column presents labor market indicators to watch in evaluating both the health of the U.S. economy and the effects of the Trump administration’s policy priorities. 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 is performing. The employment rate, the number of people working part time for economic reasons, and the U-6 unemployment rate—all discussed below—are some of these factors. Additionally, it is important to note how each labor market indicator differs among demographics—for example, by race. Although the national unemployment rate may be low, this indicator can tell a different story for other demographic groups.

While employment in the service sector continues to expand, manufacturing and mining inch upward

President Trump has promised to bring back coal and manufacturing jobs to U.S. workers; however, these sectors have played a diminished role in the economy since 1980—especially in recent years. Since March 1980, goods-producing employment—the top-line category that includes construction, mining, manufacturing, and others—has decreased 20 percent and remains about 5 million below its 1980 level. Service employment, on the other hand, has grown by 90 percent since 1980 and from less than three times larger than goods-producing employment to more than six times larger today. As shown in Figure 1, service employment levels are much higher than goods-producing levels, meaning a percentage increase in service employment has a much larger effect on overall employment levels.

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

President Trump inherited a growing economy; however, there is still room for additional growth. Although the unemployment rate—the percentage of people actively looking for a job—is at prerecession levels, Figure 2 indicates that the employment rate—the percentage of the whole population that is employed—remains below prerecession rates, meaning that a larger percentage of people fall outside of the labor market now than in 2006. This likely indicates that many people have exited the labor market due to long-term unemployment and have not yet re-entered. It is good news that the number of long-term unemployed workers has continued to fall, but work remains to bring people back into the workforce. A recovery that reaches these workers is a key to long-term economic growth.

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—remains high compared to prerecession levels. 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 July 2017, the number of involuntary part-time workers decreased slightly to 5.2 million, which is still significantly higher than the precrisis low of 3.9 million in April 2006.

U-3 vs. U-6

The U-3 unemployment rate, the most common unemployment measure, can underestimate those who are unable to find jobs. For example, it 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. A low U-6 indicates that people who face greater barriers in finding employment are being pulled back into the labor market due to greater economic opportunity. 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 unemployment rate has not recovered to prerecession rates for all demographics

The gains from the recovery have not been experienced equally among 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 9.4 percent to 4.3 percent between July 2010 and July 2017, the rate for African Americans only dropped from 15.6 percent to 7.4 percent during the same time frame. Focusing on the groups whose unemployment rates continue to have room for improvement should be a benchmark for the health of the U.S. labor market overall. Expanding their opportunities in the labor market can be a source of future economic growth.

Conclusion

This employment release will provide an updated snapshot of the real economy under the Trump administration. Since the Trump administration is only in its eighth month and there has been no progress on any employment-related policies during this period, it is unlikely that August’s data will show any drastic changes. However, as President Trump’s first term continues, the indicators highlighted above will be key in evaluating his policies. In order to maintain economic growth, the new administration must take these data seriously in its decision-making. 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.

The Fed continues to be an important force in keeping the economy growing sustainably, but monetary policy is likely to be tested by economic uncertainty under the Trump administration. There is still room for the economy to grow, but it will require proactive labor market policy based on good data in order to improve the conditions that American workers face. The importance of sound economic data to guide and evaluate policy decisions cannot be understated. President Trump should embrace such data, such as the monthly jobs report, in the coming months and years to help shape his policy proposals.

Gregg Gelzinis is a special assistant for the Economic Policy team at the Center for American Progress. Michael Madowitz is an economist at the Center.