The Labor Market Recovery is Weak

I present some evidence that the unemployment rate understates the weakness in the labor market recovery and that a full-time-equivalent (FTE) employment to population ratio is a better measure of labor market activity in a guest post at Modeled Behavior.  This is the approach we take in the Welch Consulting Employment Index.

In the post I calculate that FTE employment is 6.1% below trend.  My calculations of FTE employment relative to trend account for the changing age composition of the population and quite different trends in employment rates within each age group.

One of the most important observations that I make in my post is that over 40% of the shortfall in full-time employment is among adults age 55+.  To non-labor economists this observation may seem surprising because FTE employment rates for adults age 55+ remained steady since 2008.  But employment rates were trending up for this group quite steadily prior to the recession as the following figure shows.


If the labor market recovery was typical of most postwar recoveries employment rates for the age 55+ cohort would still be increasing.  The fact that employment rates have remained constant since 2008 is very disappointing.  The natural employment rate for this age cohort is trending up for several reasons: (I) the Social Security retirement age for this age group is now 67 rather than 65 so more seniors will remain employed, (2) increases in life expectancy, (3) the aging of the baby boom cohort means that a higher fraction of the age 55+ group are in the 55-59 and 60-64 age categories that have always displayed higher employment rates, and (4) women now reaching age 55 have much greater labor force attachment throughout their careers than earlier cohorts of women.

The bottom line is that despite the unemployment rate dropping from 10% to 7.3% (which is still quite high) the labor market is much weaker than the official unemployment rate would suggest.  There are millions of adults in part-time work who in previous recoveries would have been working full-time and there are millions more who have given up looking for work and are no longer counted as part of the labor force.




Leaving Las Vegas But Devastating Atlantic City and Reno

Employment in casino hotels in the U.S. is on the decline.  Atlantic City, Las Vegas and Reno are seeing fewer visitors and lower revenues.  Part of this decline is due to the weak economy and stagnant middle class incomes.  The employment declines also reflect a long-term shift away from gaming in cities such as Atlantic City and Reno to other forms of gambling and entertainment.  Atlantic City casinos face competition from casinos in Pennsylvania, Delaware and Maryland, and Reno casinos have been hit hard by a very weak Nevada economy and increased competition from casinos in California and other western states.  As more states and cities allow casino gambling as a way to generate state and local government tax revenue, Atlantic City and Reno are likely to suffer even bigger declines in demand.  At one time these cities offered a relatively scarce commodity – legal casino gambling.  They now face sluggish demand because of a tepid economic recovery and increased competition.  Neither of these economic factors is likely to change soon.

The struggles of Atlantic City casinos have been well documented as earnings in the second quarter of 2013 are reportedly down 45% from the second quarter of 2012.  Employment in Atlantic City casino hotels in the second quarter of 2013 was nearly 35% below employment in 2000.  (For ease of exposition in what follows I use casinos to describe the industry group for “casino hotels”)  While employment in Las Vegas casinos is down only about 5% from 2000, casino employment in the rest of Nevada is down 43% from 2000.  Reno has the largest concentration of Nevada casinos outside of Las Vegas and employment there is down 44% since 2000.

As the following chart shows the sharp declines in casino employment in Atlantic City and Nevada outside of Las Vegas has occurred at the same time that casinos have been rapidly expanding outside of Atlantic City and Nevada.  (The chart normalizes employment to 100 in the first quarter of 2000 using the Current Employment Statistics series of the BLS.)


Employment in casinos outside of Nevada and New Jersey is up about 45% since 2000.  Vacationers who previously travelled to Atlantic City and Reno to gamble are instead visiting casinos along the Gulf Coast, or one of the 470 American Indian casinos located across the U.S. (including Connecticut, upstate New York, and parts of California).  Casinos outside of Nevada and Atlantic City employed 13.2% of all casino workers in the U.S in 2000 but now account for 21% of U.S. casino jobs.  Moreover casinos outside of Nevada and Atlantic City now employ more workers than all the casinos in Atlantic City, Reno, Laughlin, Lake Tahoe and all of Nevada outside the Las Vegas metro area.  This trend will continue as states and cities hungry for new sources of tax revenue allow more casinos to be built.  New casinos located throughout the U.S. will offer even more competition to Atlantic City and Reno.  The unemployment rate in 2013 has been an average of 13.2% in Atlantic City and 9.8% in Reno – both well above the U.S. rate.  Increased competition in casino gambling, the primary entertainment and tourist attractions in these cities, means that their local economies will continue to struggle.

The Decline in Employment of Women

In January 2001, the month George W. Bush was inaugurated, 74.2% of women age 25 to 54 were employed.  Last month only 69% of women age 25 to 54 were employed.  This decline means that 3.4 million fewer women are working, during the most important years for career advancement, than if the employment to population ratios had remained stable over the past decade.

The past two recessions have caused substantial declines in the employment of women, reversing more than 40 years of increasing labor force participation and employment of women.  The following charts, based on data from the Current Population Survey, show that the employment of women under age 55 declined (relative to population) during the first 3.5 years of both the George W. Bush and Obama Administrations.

The decline in employment has been especially large for women age 20 to 24.  In early 2001 more than 69% of women age 20 to 24 were employed.  By the middle of 2012 only 59% of women in this age group were employed.

Only women age 55 and above experienced a significant increase in employment during the first 3.5 years of the G.W. Bush Administration.  However, over the past 3.5 years the employment of women age 55 and above has just kept pace with population growth.

The employment of women has declined relative to population over the last decade.  The past two recessions have reversed some of the gains in women’s employment between 1960 and 2000.  It is especially troubling that women’s employment has declined relative to population even during the past two years of a relatively weak economic recovery.

Women’s employment has declined by more than 5% in the 25 to 54 age group since 2001.  Workers in this age group are accumulating valuable experience and human capital that results in future earnings growth.  Workers with more gaps in their employment histories from age 25 to 54 are likely to experience slower earnings growth over their careers.  The consequence of fewer employment opportunities over the past decade for these women will be lower earnings for years to come.

Higher Education and the Labor Market Recovery

The February jobs report generated a lot of buzz: employment increased by almost 2.6 million in the past twelve months according to the household survey.  Unfortunately a more careful examination of the data indicates that there has been no recovery for workers with a high school diploma or GED, or for high-school dropouts.  The jobs gap for less educated workers is a structural, not cyclical, labor market problem.  Moreover, the fastest grow segment of the labor market is part-time employment for adults age 20-24, most of whom are enrolled in a two-year or four-year college.  One out of five jobs added in the past year were part-time jobs for college-age young adults. 

There are three groups of workers that account for all of the employment gains in the past twelve months: adults with a college degree, adults with some college education, and part-time workers between the age of 20 and 24. 

Here is how employment has increased in the past twelve months:

  • An increase of 3.0% (1.31 million) for college graduates age 25 and above.
  • An increase 2.2% (753,000) for adults age 25 and above with some college education.
  • An increase of 10.7% (527,000) in part-time employment of adults age 20-24.
  • No change in employment for the rest of the labor force.

Almost all of the employment gains in the recovery have accrued to college graduates, part-time workers who are college students, or adults who previously attended college.  About 51% of job gains in the past year were achieved by college graduates, 29% by adults who attended college but did not receive a bachelor’s degree, and the remaining 20% by part-time jobs for adults in their early 20s, the majority of whom are college or community college students.  The remaining 40% of the workforce have seen no net new jobs in the past year.

It is quite remarkable that college-age workers in part-time jobs are responsible for 20% of employment growth in the past year even though they are less than 4% of the workforce.  Many students have delayed college completion and took a part-time job, because of the weak labor market.  These students want full-time employment that will allow them to utilize their education and training, move out of their parents’ homes, and repay their student loan debt.  The growth in part-time employment of college students is an indication of the labor market’s underlying weakness.

Delayed Retirement

There is one group of workers whose employment rates did not fall during the recession – senior citizens.  This, however, is not necessarily good news.  Although Americans have been choosing to delay retirement and work later in life for the past few decades, some recent decisions to delay retirement may have been motivated by declines in household wealth during the recession.

The following chart presents changes in the employment to population ratio for adult men over the past four years.  I use a “Full-Time Equivalent” notion of employment so that a part-time job counts as one half of a full-time job.  The chart shows that the employment to population ratio:

  • Fell sharply during the recession and has partially recovered for men under age 65.
  • Fell modestly for men age 65 to 69 and has recovered all of the previous losses.
  • Increased modestly for men age 70 to 74 even during the recession.

The deep recession damaged the employment prospects of prime working age men more than the aggregate employment figures suggest.  The aggregate employment decline was ameliorated by some senior citizens delaying their retirement because of substantial losses in their household wealth.

Swing States

As I watch the Michigan Primary results on Tuesday night, I will be focused on exit polls about the state of the economy in Michigan.  Do voters in Michigan feel like the economy is on the rebound?  Will voters in other key swing states be optimistic about the economic recovery by November?

Earlier this month Ryan Avent of the Economist posted a chart showing changes in unemployment rates in swing states.  Although the chart seemed to show that labor markets are recovering faster in swing states, this may not be the case.  In an earlier post  I showed that much of Michigan’s drop in the unemployment rate is due to a declining labor force.  Today Tami Luhby of CNN Money made a similar point – the unemployment rate in Michigan and other swing states is falling, in part, because of workers leaving the labor force.

Good news or bad news can cause the unemployment rate to fall.  A better barometer of the labor market in swing states is the percentage change in payroll employment.  The following chart lists swing states and their employment changes over the past four years.

The chart indicates that Nevada, Florida, Michigan and North Carolina have lost the most jobs (in percentage terms) since December of 2007.  Moreover, ten of fourteen swing states have experienced a larger decline in employment than in the rest of the U.S..  Michigan, Florida and Ohio are the only swing states where employment grew faster in the past year than in non-swing states.

If one looks at the percentage change in employment, rather than changes in the unemployment rate, labor markets appear to be weaker in key swing states than in the rest of the U.S.  The strength of the economic recovery, and employment growth, in these fourteen states may determine the outcome of the Presidential election.

Turning the Corner

When I saw last Friday’s encouraging jobs report I knew it would be controversial.  An increase in payroll employment of 243,000 is good news, but any January report contains a large seasonal adjustment because it is typically the weakest month of the year for employment.  The Bureau of Labor Statistics generates a new seasonal adjustment factor every month, to allow for changing economic conditions, but it means that no two January adjustments are the same.  Skeptics, such as Zero Hedge, correctly observed that the past two January seasonal adjustments have been especially large which might account for 100k of the job gain reported last week.

The Bureau of Labor Statistics is faced with an incredibly challenging task.  It must generate a near real-time count of the country’s total payroll and report it as if January was no different than June.  I know things are out of hand when Rush Limbaugh and Rachel Maddow are commenting on the appropriateness of the government’s seasonal adjustment process.  It is unfortunate that last week’s solid report was obscured by an opaque statistical methodology.   I prefer a more transparent method for presenting high-frequency changes in payroll employment.  My approach shows slow and steady improvement in the aggregate labor market throughout 2011.

First, I consider average payroll employment over a quarter year to mitigate the noise in any single month’s report.  Second, I compare year-over-year percentage changes in quarterly employment rather than use a confusing and complicated method for removing seasonal effects.  The following figure presents these changes in payroll employment for all of 2011 and January 2012.

Employment grew by 1% annually in the first half of 2011 and by 1.2% and 1.3% in the third and fourth quarters.  The January jobs report is encouraging because it reflects a 1.5% annual employment growth rate.  Of course the next two monthly reports will have to be equally strong to maintain a growth rate of 1.5% for the entire first quarter of 2012.

Quarterly year-over-year changes eliminate some of the noise in monthly reports and their evolving seasonal adjustments.  Conventional wisdom, fueled by noisy monthly reports, is that the labor market recovery sputtered in the second half of 2011.  In fact, the labor market has been improving slowly and steadily.  There are problems to be sure.  Annual employment growth of 1.5% is better than we have seen recently but it’s painfully slow given the deep recession.  More importantly, as I will show in future posts, the labor market remains especially weak for less skilled workers and in areas hit hard by the real estate crisis.

Women and the Economic Recovery

News media coverage of the 2008 recession and the subsequent recovery has focused on changes in total employment and movements in the overall unemployment.  Although the change in the total number of jobs is an important economic indicator, a focus on overall employment and unemployment can mask important changes in the composition of the workforce.  I look beyond changes in total employment to illustrate why the 2008 recession is unlike any in U.S. history.  Job losses in recessions previously were concentrated in traditionally male-dominated jobs.  The 2008 recession was different.  Women lost jobs in record numbers and women have seen small job gains during the recovery.  This stands in stark contrast to previous recessions and recoveries.

The following graph illustrates changes in the full-time equivalent employment (a part-time job is counted as ½ of a full-time job) of men.  Four years after total employment started to decline, men’s employment recovered and grew to 4 to 5% above the pre-recession peak in the 1970’s and 1980’s, but only about 1% above the pre-recession peak after the 1990 and 2000 recoveries.  The recovery over the past two years has been especially weak.

The U.S. labor force changed dramatically during the 1970s and 1980s.  The labor force participation rate of women increased from 43.3% to 57.5% between 1970 and 1990 but has leveled off since then.  The widespread reallocation of women’s human capital from household activities (not included in GDP) to paid market work had a profound impact on measured employment and GDP.  Employment and GDP increase, even though the same work is being done, when house cleaning and lawn care tasks are completed by paid service workers rather than by family members.

Cyclical employment fluctuations look very different for women.  The robust labor market recoveries of the 1970’s and 1980’s were fueled by the entry of women into the labor force.  Women’s employment grew by 15% between 1974 and 1978, and by 10% between 1981 and 1985, despite the deep recessions.

Job losses during recessions were largely confined to men until the 2008 downturn.  Women’s employment never fell by more than 1% in any recession prior to 2008.  In contrast, women’s employment fell by 5% between January 2008 and December 2009, and is still 4.6% below the pre-recession peak.

Future economic recoveries are unlikely to exhibit the robust employment gains that occurred during the 1970’s and 1980’s as millions of women moved from unpaid household work to jobs in the market sector.  This type of transformational change is unlikely to occur again.

The 2008 recession is unique because of the magnitude of employment losses sustained by women (although still smaller than for men) and the sluggish growth in women’s employment during the recovery.   In the past year both employment and labor force participation declined for women but increased for men.  Despite the labor market gains achieved by women over the past forty years, women face a somewhat new challenge – coping with substantial job losses in an economic downturn.

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