Missing Workers Mean It's No Time to Celebrate Jobs Data
It's hard to miss the stories celebrating the good news of the monthly jobs report from the Labor Department, like how in May the U.S. economy added more than 200,000 jobs for a fourth straight month and how the number of employed Americans reached an all-time high.
That the economy has recovered all jobs lost during the recession is "an economically meaningless benchmark," though, since a continued recovery needs job growth to keep pace with population growth, according to Heidi Shierholz, an economist at the Economic Policy Institute in Washington.
"We certainly have to pass that benchmark to get back to full employment, but passing that benchmark does not even come close to getting us there," she said.
Shierholz and other EPI economists calculate that the recession resulted in a deficit of almost 7 million jobs. That's calculated from looking at the size of the "potential labor force," or the actual labor force plus 5.95 million " missing workers," who are Americans who, because of weak job prospects, are neither employed nor actively looking for a job. The EPI updates missing worker data the first Friday of each month after the jobs report.
If those missing workers were back in the labor force, Shierholz and the EPI estimate, the unemployment rate would be 9.7 percent, much higher than the 6.3 percent reported this morning.
It'd also mean a higher participation rate, or the share of people employed or actively looking for work. In May that reading remained flat at 62.8 percent and matched its lowest level since 1978. Shierholz used Bureau of Labor Statistics pre-recession projections to calculate a potential labor force participation rate, which would be a more robust 65.2 percent.
The economy hasn't added more than 200,000 jobs for four straight months since January 2000, a sign growth is accelerating, said Torsten Slok, chief international economist and managing director at Deutsche Bank Securities in New York, in a note to clients.
But the "magic number" for strong job growth should be over a quarter million monthly, said Keith Hall, an economist and senior research fellow at the Mercatus Center at George Mason University.
"If you look at jobs reports, we add 190,000 to 200,000 to the working age labor force. Sixty-five percent of those people should be employed," Hall said. "That means we need about 130,000 to tread water, and progress is when you get over 130,000 jobs. So if you're only looking at 200,000 jobs a month, that's great, but that's only 70,000 jobs in progress towards getting back to a fully healthy economy."
Furthermore, job figures for young Americans continue to look grim. For those in the 25 to 34 age group, employment declined for a third straight month and was the lowest it's been since December. This is a worrying sign for the housing market, noted Trulia Chief Economist Jed Kolko in an email, since that's the "prime age group for housing demand."
