Years After Recession, Labor Challenges Remain
Since last August, when President Obama was still in the White House, the U.S. economy has added 2.38 million new jobs, while the official unemployment rate has held below 5 percent. While this is reassuring, some of the alternative measures of economic vitality suggest that the labor market is not out of the woods just yet.
Back in September, during a speech at the New York Economic Club, then-candidate Donald Trump made a pledge: “Over the next 10 years, our economic team estimates that under our plan the economy will average 3.5 percent growth and create a total of 25 million new jobs.” Fast forward to today: the U.S. economy has grown 2.6 percent in the second quarter of 2017 and on average 176,000 net new jobs each month, so far this year, according to the Bureau of Labor Statistics (BLS). If these trends continue, the U.S. labor market may hit 2.1 million new jobs by January 2018. Though coming short of the president’s promises, these are nonetheless solid gains.
More importantly, the unemployment rate is at its lowest level since the 2001. Still, millions of educated and experienced Americans struggle to land a job. The reasons usually involve a combination of economic and individual circumstances, from low labor participation rate to “skill mismatch.”
For instance, 15 years ago, Randall Steger, who has a degree in industrial engineering from Purdue University, had a promising career in IT consulting for the manufacturing industry, a nearly six-figure income, and endless prospects. Then he got laid off, and has struggled to land stable employment ever since. According to the BLS, 7 million individuals were out of work last month. But Randall may not be one of them, since the officially cited 4.4 percent unemployment rate fails to capture a bigger picture of “underemployment.”
The U-3 or official unemployment rate, shows the number of people 16 and older who are currently unemployed and actively seeking work as a percentage of the total labor force. A broader U-6 unemployment rate — also called underemployment — takes into account not just workers who can’t find jobs, but also those who have stopped looking for work in the past month, were forced to accept part-time employment, or became discouraged altogether. In July, the U-6 showed underemployment steady at 8.6 percent.
The U-6 is always higher than U-3, but the gap grew much larger than usual during the recession; it has remained above or near pre-recession records over the course of the recovery.
“My schedule was all over the place,” says Laymonda Brewer-Thomas in a PBS interview, who combined two part-time jobs before finally landing a more stable assistant manager position at the Chicago Walgreens. “So I was juggling both jobs at the time…It’s a lot more challenging now to actually find employment and to find employment that may be best suited for your needs.”
One piece of the puzzle is that during the recession, millions went unemployed for prolonged spells. And the weak economic recovery since then has meant that fresh entrants, including college graduates, have had to compete with more experienced workers for a limited number of job vacancies. This, in turn, has enlarged the mismatch between skill and experience. But that’s not the only challenge.
“This is not a market we have typically seen,” Michael Stull, senior vice president at the staffing company Manpower North America, told The New York Times. “We have not before seen unemployment drop, low participation rates and wages not move. That tells you something’s not right in the labor market.”
This July, only 63 percent of Americans were either employed or searching — a three percent decline from 2007 — according to BLS estimates. The aging population is the largest component of the decline, although not the only one. (See the work of Nicholas Eberstadt, for example.) This hinders overall economic growth and lowers workers’ prospects to find jobs in future, given the gaps in training and hands-on experience. Finally, real wages — wages minus inflation — have also stalled, preventing actual income growth.
At the end of the day, the declining fortunes of younger workers may impact the wealth of retired or soon-to-be-retired boomers. Millennials, through payroll taxes, help fund the pay-as-you-go Social Security and Medicare programs that many boomers take advantage of. Those same retirees will need younger generations to buy their homes and invest in the financial markets to protect their retirement savings.
So is the labor market out of the woods yet? Time will be the judge of that. At least we know how our president feels about the recent labor statistics: “They [unemployment rates] may have been phony in the past, but it’s very real now.” As the labor market keeps showing solid gains, more and more Americans will be landing jobs they want and qualify for. And while it is perhaps pointless to contemplate the validity of the official numbers, the alternative measures, such as the U-6 rate, can help unmask the challenges that still remain and should be addressed by the current president and the Congress in the coming years.
Anil Niraula is a policy analyst who writes on pensions, labor, and economic policies. He is a Young Voices Advocate.