The U.S. Labor Market: End-of-Year Review and Outlook
As 2016 ends, the U.S. labor market is in its best shape since the recession, with nearly every measure of the market at its most favorable level in years. At the same time, economic confidence has improved only slightly in recent years (though it jumped after the election). Concerns about the job market are widespread, and not just among Donald Trump’s voters who want to bring back manufacturing jobs but also among Silicon Valley types who are worried that automation and the gig economy could mean the end of work as we know it.
With the sustained and continued recovery, why do job-market worries persist? For starters, recent labor data aren’t quite as good as they first appear. Plus, the overall U.S. numbers hide big differences across industries, regions, and demographic groups, some of whom are faring badly. And finally, now that the labor market is far from the acute crisis of the recession, the market’s chronic conditions are easier to see and perhaps more possible to address.
Where the U.S. Labor Market Stands
Let’s start with the good news: the U.S. economy added an average of 180,000 jobs each month in 2016 through November, which is well above the approximately 60,000 monthly jobs needed to keep pace with the growth in the working-age population. While average monthly payroll growth was lower in 2016 than 2015, it’s expected and natural that job growth would slow as the economy returns toward normal and has less room to recover. Thanks to years of job growth, the unemployment rate has fallen to 4.6%—its lowest level since August 2007 and also slightly below the Federal Reserve’s expected long-run level of unemployment of 4.8%. A broader measure of employment that includes discouraged workers and some under-employed workers (the U-6 rate) is back down to its April 2008 level.
Workers are benefiting from the job-market recovery. Hourly earnings increased 2.5% in the year to November, an acceleration over previous years. Together, higher earnings and increased employment contributed to a jump in household incomes in 2015. Median wages, adjusted for inflation, reached a record high in the third quarter of 2016. People looking for jobs have more to choose from, with fewer unemployed people per job opening; plus, more people have the confidence to leave their jobs, with quits outnumbering layoffs by the largest margin in over a decade.
Though the labor market is at its strongest point since the recovery began, some critical measures are worse today than before last decade’s recession. The low unemployment rates mask two troubling trends.
First, unemployment spells have lengthened. Among those who are unemployed, 24.8% have been without work for at least six months, compared with 17.5% in August 2007, when the overall unemployment rate was the same as today. Furthermore, the prime-working-age employment-population ratio, which stood at 78.1% in November, is below its pre-recession level. In fact, compared to its low of 74.8%, this ratio has recovered only three-fifths of the way back to where it was ten years ago. That’s because more…