The employment report for June 2014, released this morning, shows how the labor market is performing exactly five years after the Great Recession ended.
The report was a particularly encouraging one, but necessitates a hefty caveat: five years after the recession ended, the labor market remains far from recovered.
By most of the best metrics of economic health, the economy is only between one-third and half of the way to fully recovered. That diagnosis remains fundamentally unaltered by today’s jobs report.
The economy added 288,000 jobs for the month, and employment gains in April and May were revised upwards. It’s also clear that the labor market has been picking up some steam heading into the summer.
One-month snapshots are incomplete, often volatile depictions of economic indicators, so economists look at rolling averages to better understand trends. The economy has added an average of 272,000 jobs over the last three months, 231,000 over the last six, and 208,000 over the last twelve—acceleration is visible.
And overall, the economy has added 2.5 million jobs in the last year, the best annual pace of job growth during the recovery.
Not There Yet
In May 2014, total payroll employment edged above its peak at the start of the Great Recession, having recovered a bit more than the 8.7 million jobs that were rapidly shed in the aftermath of the housing bubble’s implosion. But this only represents a halfway marker on the road to recovery.
In the six-and-a-half years since the Great Recession started, the number of working age adults has increased considerably, so many more jobs are needed today than in late 2007.
The Congressional Budget Office estimates that the potential U.S. labor force will have increased by 6.4 million workers between 2007 and 2014.
Not To Be Trusted
As a rule of thumb, a little over 100,000 new jobs are needed every month just to keep up with new entrants to the potential labor force—the size the labor force would be if workers hadn’t been dropping out because of the lack of job opportunities.
The Economic Policy Institute estimates there are 6 million such workers “missing” from the labor force; if these workers were counted as unemployed members of the labor force, the unemployment rate would have registered 9.6 percent in June, down from 9.7 percent in May.
Instead, the unemployment rate—which has been quite the misleading economic indicator in recent years—decreased from 6.3 percent to 6.1 percent. This drop in the unemployment rate was driven by rising employment, but for much of the recovery, a falling unemployment rate has instead been driven by workers dropping out of the labor force altogether.
Consequently, it’s useful to look at the share of the working age population that is employed, as opposed to the share of the labor force that is employed. The employment-to-population ratio rose to 59 percent in June, reaching a new high for the recovery. The share of prime-age workers (ages 25–54) who are employed rose to 76.7 percent, also a high for the recovery.
But five years after the end of the Great Recession, the share of the employed adult workforce remains 6.2 percent below its peak in January 2008, and the share of employed prime-age adults is down 4.1 percent.
Less than 40 percent of the drop in the employment-to-population ratio for prime-age workers has been recovered.
Early into the recovery, roughly 11 million jobs were needed to restore the unemployment rate to pre-recession levels.
Today, that number stands around 6.7 million to 6.8 million jobs needed, according to estimates by the Economic Policy Institute and the Brookings Institution, respectively.
Not Fast Enough
Less than 40 percent of the employment shortfall caused by the Great Recession has been closed.
Even at the faster pace of hiring over the last six months, it will be another three-and-a-half years before the economy reaches pre-recession unemployment rates.
Today’s employment report surely marks another step in the right direction, but overall progress has been far too sluggish to be nearing recovery from the worst economic crisis since the Great Depression. Five years after the Great Recession ended, the labor market remains less than halfway recovered.
This is a clarion call that policymakers should be prioritizing economic recovery until the labor market is back to full health.
Andrew Fieldhouse covered this topic recently at The Huffington Post. Read on for more information.