The Real Job Numbers

November 7, 2003
TomPaine.common sense, a public interest journal

  Many in the media have underestimated the severity of the current labor slump by focusing on the unemployment rate and the gains in real hourly wages. If you look at the numbers, the current slump is setting records in terms of sustained job loss and the decline in wage and salary income among other areas. Why should you be skeptical of those, who report a rosy future in the job market? Read on!

  A number of factors must be considered, in order to understand the severity of the current labor slump:

• The record length of time that jobs have failed to recover — Prior to the current slump, jobs had never fallen over a two-and-a-half year period, since monthly job numbers began in 1939. As of October 2003, payroll jobs had fallen by 2.4 million below the level of March 2001.
• The growth in the working age population, since the recession began in March 2001 — Even as jobs were shrinking by 1.8 percent, the working age population (i.e. the number of people of working age) was growing by 3.4 percent. Had job growth kept up with working age population growth over that period, 6.9 million more payroll jobs would have been filled in October 2003.
• The effect of the "missing" labor market on the unemployment rate — The unusually prolonged loss of jobs has caused an unprecedented number of people to refrain from actively looking for work and therefore to be excluded from the unemployment measurement. Had the labor force grown more in line with the population — as it has in past labor slumps —, another 2.3 million people would have been in the labor force in October 2003. This "missing" labor force is significant, because the unemployment rate would have been 7.4 percent, had the 2.3 million "missing" workers been considered as unemployed. The 7.4 percent unemployment figure provides a better measure of current slack in the labor market, than the actual unemployment rate of 6.0 percent. The 1.4-percentage-point difference reflects the people pushed to the sidelines of the labor market, who can be expected to seek work again, once job prospects improve. As a result, the official unemployment rate should not be expected to fall very much, when the employment picture actually begins to improve.
• The loss of wage and salary income — Although real hourly wages have grown since the start of the recession, those gains have been more, than offset by declines in the number of jobs and the amount of hours paid per job.

  The U.S. labor market has remained mired in a slump, since the recession began in March 2001. This briefing paper compares the severity of the current labor slump with that of earlier slumps in terms of both depth and duration and in terms of both absolute decline and the decline relative to a target based on keeping pace with population growth. Because of the extended period of job loss, the current labor slump is the most severe on record by several important measures:

• This slump saw the longest duration of job loss — 28 months.
• This slump is the first time, in which there was not a full recovery of jobs 31 months after the recession began.
• This slump is the worst in terms of the rise of the unemployment rate (after adjustment for the "missing" labor force), 31 months after the recession began — up 3.2 percentage points.
• The current slump has also been the most severe in terms of the loss of aggregate real wage and salary income, 30 months after the recession began — down 1.2 percent.

  For more information on jobs and the economy and to read the full briefing paper "Understanding the Severity of the Current Labor Slump" by Lee Price with Yulia Fungard, please click here (PDF file, 49.4 KB)!