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

Capitol Building Lit Up After Sunset

On Friday, the U.S. Bureau of Labor Statistics will release its Employment Situation Summary for the month of December. Since the employment recovery began in February 2010, the U.S. economy has added more than 17 million jobs, and the steady tightening of the labor market has finally started to deliver some modest wage growth for workers, with wages increasing 2.3 percent over the past year. Unfortunately, President Donald Trump has not furthered this economic progress, as he has not pushed for any economic policies that would help workers or create jobs.

Over the past several weeks, the Trump administration and Congress have worked tirelessy to deliver a massive tax cut to corporations and the wealthiest Americans. The tax cut being jammed through Congress without any hearings will increase the debt by at least $1 trillion, though likely by even more once gimmicks are taken into account. Cutting taxes for corporations and the wealthy does not create jobs. If President Trump and congressional Republicans wanted to create jobs and boost wages, they would advance legislation that invests in education, health care, and infrastructure. Instead, they’ve opted for a massive giveaway that will pad already sky-high corporate profits and the wealth of the top 1 percent.

While the labor market continued gaining momentum during 2017, its future in 2018 remains uncertain. Not only will the Federal Reserve Board of Governors have a new chair, but the Fed has also signaled a tighter policy that will restrain wage growth. The Fed’s signal came even before Congress passed a large tax cut for the wealthiest Americans and corporations at the expense of middle- and low-income families. It will be interesting to watch how the Fed responds to opposing pressures as slow wage growth holds inflation back while the congressional Republicans’ irresponsible tax cut for the rich will push inflation higher.

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 more complete 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 across 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 by 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 November 2017, the number of involuntary part-time workers remained roughly the same at 4.8 million, compared to October 2017, 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 9.8 percent to 4.1 percent between November 2010 and November 2017, the rate for African Americans only dropped from 16.2 percent to 7.3 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 still in its first year and there has been no progress on any employment-related policies during this period, it is unlikely that December’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 Economic Policy at the Center for American Progress. Michael Madowitz is an economist at the Center.