Asymmetrical Information - Megan McArdle

05.03.13

The Slow, Grinding Repair of the American Labor Market

The jobs report isn't bad. But it's not great, either.

This morning's job report was in some ways a relief, and in some ways a disappointment.   The retail sector is weak right now, and retail can be a leading indicator of economic weakness (and also, a source of employment).  So I now have this sort of reflexive flinch when the jobs report comes out, as I half-expect a big blow to fall.  

That didn't happen this month, thankfully.  The jobs report was fine.  Payroll employment increased by 165,000--more than enough to soak up population growth.  Long term unemployment dropped by a quarter of a million people.  Retail employment was actually up.  

But if it wasn't too worrying, it also wasn't particularly cheering.  This is a middling jobs report for the middle of the business cycle.  But five years after the financial crisis, we still haven't had a month of really good job growth--the kind that America needs to put some of those long-term unemployed folks back to work.  The employment-to-population seems stuck at 58.6%.  That's the lowest it's been since the early eighties, when fewer women worked.  

Take a look at the employment-to-population ratio since 1990.

The ratio tends to be steady--a little lower in recessions, a litlte higher in booms.  But it's been fairly steady in the low 60's since the 1990s--until 2008.  Then it drops, and stays low.  This may be our new normal.  

The changes in the subgroups tell an interesting story.  Male labor force participation dropped in 2009, but then started to recover a bit.  Female labor force participation fell by less, but it's still falling, years later. And teen employment fell off a cliff.  

What does this tell us?  In general, it's easier for women and teens to leave the labor force than for adult males.  Women have a socially acceptable alternative role (stay-at-home Mom), and teens have parents who are used to supporting them.  When you add this to the fact that male wages are usually higher, it's harder for men to accept exiting the labor force.  

What this suggests is that the labor market is so tight that people with a viable alternative are choosing to exit, for school or home, rather than maintain a discouraging, brutal job search.  By contrast, look what's happened to the employment-to-population ratio among people over 65:

That's a big surprise--you'd expect folks to be retiring, if they can.  But the decline in the value of their assets may have kept more oldsters working longer to make up for the losses.  

One way to look at this is that people could get jobs if they had to.  But that's not the story I'd tell.  I'd say that jobs are so scarce that they're essentially being rationed by need: the most desperate people are the least likely to be unemployed.  Employers just aren't taking on a lot of net new workers; instead, they're working the folks they have much harder.  Average weekly earnings have gone up, even as employment has stagnated.

So while this jobs report isn't bad news, it isn't good news, either.  America's unemployed need something.  It's not redistribution.  It's not extended unemployment benefits.  And it's not a good, swift kick in the seat of the pants.  It's a job.  

I don't know how many times I'm going to have to write this column before we do something.  No, I don't mean that I expected my writings to somehow alter the behavior of the US government.  But this is a great crisis in America, about which, so far, we have managed to do very little.  Until it improves, I'll feel compelled to keep writing.