A Labor Market Stuck in Neutral

[ProSense]

A Labor Market Stuck in Neutral

Heidi Shierholz

The July 2010 employment report released this morning by the Bureau of Labor Statistics captured a labor market bogged down in a very painful situation. The unemployment rate held steady at 9.5% in July, while the private sector added just 71,000 jobs--larger than the last two months (which averaged 41,000 after downward revisions), but smaller than in March and April (which averaged 200,000).

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Retail trade gained 7,000 jobs in July, after losing an average of 4,000 for the prior three months. Financial activities lost 17,000 in July, with 9,000 of those lost in real estate. Leisure and hospitality added 6,000 jobs in July, after adding an average of 14,000 for the prior three months. One bright spot was health care, which added 27,000 jobs in July, after adding an average of 15,000 for the prior three months.

The recession began in December 2007, and employment reached its lowest point two years later, in December 2009. Since last December, the private sector has been adding jobs. The following chart shows percent changes in employment over these two periods by sector. Over the first two years of the recession, construction employment declined by 24.0%, and has continued to decline since then. Manufacturing lost 16.0% over the first two years, but is now adding jobs, increasing by 1.6% since last December. Employment in leisure and hospitality declined by 4.0% over the first two years, but has increased by 0.8% since then. Professional and business services declined by 8.7% in the first two year, but increased by 1.1% since then--the swing in that sector was driven in large part by temporary help services, which lost 32.6% of employment from December 2007 to September 2009 (the trough for temp help), and has gained 21.1% since then. All together, private service-producing sectors lost 4.7% in the first two years, and have gained 0.6% since then.

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The labor market remains 7.7 million payroll jobs below where it was at the start of the recession in December 2007. And this number understates the size of the gap in the labor market by failing to take into account the fact that, simply to keep up with the growth in the working-age population, the labor market should have added around 3.2 million jobs since December 2007. This means the labor market is now roughly 10.9 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007). To get down to the pre-recession unemployment rate within five years, the labor market would have to add roughly 285,000 jobs every month for that entire period. In July, excluding changes in temporary Census hiring, the labor market added 12,000.

Conclusion

With a deficit of 10.9 million jobs--a 9.5% unemployment rate--the private sector is not yet able to provide a robust recovery, and it is time for the government to do substantially more to create jobs so the backlog of unemployed workers in this country can have a desperately needed chance to get back to work. Yesterday, the Senate voted to approve a bill that included $26 billion in aid to states and school districts; the House is expected to vote on it on Tuesday. With state and local government shedding 48,000 jobs in July, this relief is crucial.