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In an otherwise pretty positive April jobs report, one of the darker spots was a shrinking labor force. The number of Americans looking for jobs or working fell by more than 800,000. While that can signal people retiring or going to school, it can also include people just plain giving up on looking for jobs.
However, Labor Secretary Thomas Perez believes it was an issue of timing.
"What we tend to see, and this is my operating hypothesis of what's going on, this time of year we traditionally expect to see certain types of people flowing into the workforce, and those people are seasonal workers," he says.
The people seeking out that seasonal work start to ramp up their searches later in the month of April, he says. However, the survey week in which the government asks US households whether people are working fell as early as it possibly could have last month.
That's because the household survey week is the calendar week in which the 12th of the month falls. But the 12th landed on a Saturday, meaning households were surveyed from April 6-12.
"The people we would traditionally expect to see flowing into the workforce at this time have not yet entered the workforce," he says.
It's just one month's worth of data, so it's difficult, to say the least, to draw firm conclusions. Perez says he'll be watching next month's numbers closely, though. If people indeed decide to leave the labor force in greater numbers in the next few months — or if people enter in smaller and smaller numbers — then it could be a sign of big problems.
Every month, the Bureau of Labor Statistic releases their latest cut at the jobs data. And every month, we dutifully report the national unemployment rate, as if unemployment is a singular national phenomenon.
But it's not. America has one flag. But it doesn't have one unemployment rate, as this map from the BLS shows:
What you're seeing there is average unemployment over the last year broken out by county. The differences between states and counties are tremendous. There are states in America that are enjoying genuinely good times. And then there are states with unemployment rates that, nationally, would be considered an emergency.
In Nebraska, for instance, the unemployment rate is 3.7 percent. That's lower than the national unemployment rate ever got during the roaring 90s.
But in California, the unemployment rate is over 8 percent. And there are counties in California, like Merced, where the unemployment rate is over 15 percent. (You can see your county's unemployment rate here.)
It's easy to dismiss these numbers. After all, if the unemployment rate in a state, much less a county, is so high, why don't people just move?
One reason is that some of the counties with the highest unemployment rates also have the worst housing markets. If you own a home in Fresno, it's very likely underwater. You can always simply walk away, of course. But walking away from the home you love — not to mention your family and friends — to go take a job in an unfamiliar state is a decision that's easy for rational agents to make in economic models and hard for real people to make in their actual lives. Moreover, a lot of the people who might like to move don't have the money to move, and nor do they have a way to get the money to move.
That's why Michael Strain, a scholar at the conservative American Enterprise Institute, has suggested the government help the unemployed in high-unemployment areas with "relocation vouchers":
These subsidies should cover a solid majority of reasonable and necessary moving expenses. We may also want to make up the difference with a low-interest loan, with a repayment scheme capped at a small percentage of annual earnings subsequent to their starting a job. Moving is a major investment that requires a fair amount of up-front cash. Many of the long-term unemployed just don't have the money and don't have much access to credit.
These kinds of subsidies should be available only to long-term unemployed workers who live in an area with a poor local labor market. Workers who have left the labor force since the start of the Great Recession should be allowed to enroll provided that they were long-term unemployed before leaving. Subsidies should also be available to workers who were long-term unemployed but have exited within the past few years from long-term unemployment into a part-time job, or into a job that pays significantly less than they earned in their previous job. And workers must move to a destination a good distance from their current residence - say, at least a two-hour drive - to be eligible for a subsidy.
This isn't the kind of program you think much about if you look at the national unemployment rate, which is 6.3 percent and falling. But it is the kind of program you think about if you look at unemployment rates across the nation, which show some places with tight labor markets that could really use more workers, and some places where workers are trapped in an unending economic depression.
What caused the decline in the labor force participation rate in April? It's not so much that lots more people stopped looking for work or left their jobs; it's that fewer people started looking or started working, according to one Labor Department official.
"Our analysis of the household survey data suggests that the April labor force decline was due mostly to fewer people entering the labor force than usual, rather than to more people exiting the labor force," wrote Erica Groshen, commissioner of the Bureau of Labor Statistics, in a statement on the numbers.
The shrinking labor force participation rate was one blemish on an otherwise positive jobs report. The labor force participation rate — the share of the US population that's either working or actively looking for work — fell by 0.4 percentage points, from 63.2 to 62.8 percent, matching a 35-year low.
More months of data will shed more light on this, of course, but for now this might signal that a couple of common predictions about recent policy effects on the labor force haven't yet come to pass. Though people have been increasingly signing up for Obamacare, Groshen's statement signals that last month's labor force declines didn't come because people left their jobs, given the opportunity to get health insurance outside of employment.
It also signals that the end of extended unemployment benefits aren't pulling people out of the labor force. To get unemployment benefits, a worker has to be actively looking for a job. Some thought the end of extended benefits, therefore, would make people stop looking for jobs, but if Groshen is right, then at least last month, expiring and expired benefits didn't have this effect.
So that's two factors ... out of a whole mess of possibilities. If people aren't entering the labor force, that could include a whole variety of phenomena, like young people going to college instead of straight to work after high school (or young people just moving in with their parents instead of working). Whatever it is, untangling it could take quite a while (and a lot more data).
Here's an interesting chart from the White House Council on Economic Advisors showing that the short-term unemployed and long-term unemployed have broadly similar educational attributes:
That's at least one datapoint in favor of the view that broadly stimulative fiscal and monetary policy could help both classes of jobless workers and it's not necessarily all about emergency targeted assistance for the long-term unemployed.
The unemployment rate for 16-to-19-year-olds is now at 19.1 percent, its lowest point since the fall of 2008.
That's good news, and it shows a lot of healing from the height of the recession, when more than one-quarter of teens were unemployed. However, there is one catch, and as with so many things things job-report-related these days, it has to do with the labor force participation rate.
The teen labor force participation rate in April was 33.2 percent, down from 34.2 percent one month before. Since the crowd of 16-to-19-year olds isn't that big a population, that figure can jump around a lot. But it was also down from a year ago, when it was 34.0 percent, suggesting that recent declines in the teen unemployment rate could in part be due to teens stopping looking for work altogether.
If that's because teens are becoming discouraged because of an ugly job market, that's a bad sign. Yes, teens often have other things to do with their time, like studying, but teen jobs can also set up a person for a lifetime of gains. Youth unemployment now can mean depressed earnings for decades into the future.
It's also important to note that not all teens are the same. In particular, there are some sharp racial and ethnic differences in teen unemployment. Blacks and Hispanics in particular have much higher jobless rates than all white teens. The unemployment rate for black teens was 36.8 percent as of April. For whites, it was 15.9 percent.
The below chart, from the Federal Reserve Bank of St. Louis, shows these disparities (however, it is not yet updated with the April numbers. In addition, the Hispanic figures are not seasonally adjusted, while the other series are.).
The monthly jobs number we know and love is a seasonally adjusted data series. But is the algorithm correct? The Brookings Institution has been publishing an "improved" seasonal adjustment number for a while now and BLS economists have given some indication that they agree this is better than the one they're using. The improved method makes this month's jobs report look a bit better:
Even more good news!
The labor force participation rate fell in April by 0.4 percentage points, from 63.2 percent to 62.8 percent. That level matches a 35-year low, and it may signal very bad things for the economy — it might mean that Americans have stopped looking for work.
So who is leaving? The jobs report provides a few clues. One of the most striking is that less-educated Americans' participation rates fell, while people with degrees in fact participated more. Below is the percentage point change from March to April in the labor force participation rate for different education groups.
The less-educated already have lower participation rates than the more educated, as well.
All that said, it may not entirely be that high school dropouts and people without college degrees are increasingly joining the ranks of discouraged workers. They may also simply be retiring — younger Americans are more educated than their older peers, so those Boomers who are quitting work may just be less educated than the rest of the workforce.
Here's private sector employment (blue) and public sector employment (red) both indexed to their pre-recession peak:
The recession hit the private sector faster and harder, but the private sector's already made back all its losses. The government, by contrast, has been really slumping.
This is an important reminder from economist Justin Wolfers:
Let's not forget that a 6.3% unemployment rate was historically high in the US, and real cause for concern. Nearly 10 million remain jobless— Justin Wolfers (@JustinWolfers) May 2, 2014
Josh Wright of Bloomberg LP and formerly on staff at the Fed notes that there's no sign of wage inflation in the data:
So much for wage inflation: 0% this month. Particularly striking given the strong headline and lower participation. pic.twitter.com/9praVXBaOp— Josh Wright (@JWrightStuff) May 2, 2014
That's terrible news for people with jobs, but in a sense good news for people still looking for work since it means the Fed has no reason to raise interest rates at any point in the near future.
Health care has added 63,700 jobs this year. Including: • 22,000 at doctors' offices; • 10,100 in home health; and • Just 2,200 at hospitals— Dan Diamond (@ddiamond) May 2, 2014
From Bill McBride a sobering reminder of just how big and deep this labor market slump has been:
We're almost — but not quite — back to the employment level we had before the crash. In the interim, the population has grown quite a bit so the labor market is still a lot weaker than it was in the winter of 2007-2008.
According to today's jobs report, The civilian labor force dropped by 806,000 in April, following an increase of 503,000 in March. That kind of eccentric behavior has some people puzzled, but it's worth pulling out and looking at the whole past ten years and you'll see that this is a very unstable data series:
It's not unusual for large increases to be followed by large declines or vice versa. One reason is that this figure comes from the household report which has a larger amount of sampling error than the establishment report from which the headline jobs number comes.
It seems that the underlying phenomenon of labor force participation is itself somewhat unstable, but the nature of the survey means you would expect to see a lot of bouncing up and down even if the underlying trend was steady.
America's non-farm employers added 288,000 jobs to their payrolls in April, far more than were expected. Economists' consensus was that employers in April added 215,000 jobs. The report also represents a sharp acceleration from March, when non-farm employers added 203,000 jobs.
The unemployment rate, meanwhile, fell from 6.7 to 6.3 percent. That 0.4 percentage point decline is the sharpest since December 2010.
April marks the third straight month in which the economy has added more than 200,000 jobs. The positive report may be a sign that the labor market is healing despite a harsh winter, which many economists say weighed on growth.
The broadest measure of unemployment, the U-6 rate, which includes people who have stopped looking for work and those working part-time for economic reasons, also fell from 12.7 percent to 12.3.
However, the labor force participation rate fell from 63.2 percent to 62.8 percent. This is a measure of the share of the population either working or looking for work. It may signal that the sharp decline in the jobless rate was in part due to people stopping looking for jobs, rather than finding work.
Spending cutbacks by state and local governments, and teacher layoffs in particular, have been a big story during the past several years. So one interesting nugget from today's jobs report is a strong labor market for teachers.
There were 12,000 net new hires in local government education, plus another 1,300 in state government education. That puts us well above where we were, teachers-wise, a year ago reversing the trend that held for many years since the 2008 crash.
February revised from +197k to +222k. March from +192k to +203k. April reports at +288k. That's 3 months in a row at >+200k.— Justin Wolfers (@JustinWolfers) May 2, 2014
Back in 2012, Jack Welch managed to get a conversation going about alleged number-tampering in the jobs report:
Unbelievable jobs numbers..these Chicago guys will do anything..can't debate so change numbers— Jack Welch (@jack_welch) October 5, 2012
The Census Bureau eventually ended up looking into a more specific allegation from New York Post columnist John Crudele that pinpointed the problem in the Philadelphia office of the Census Bureau. Yesterday's the independent Inspector General released a report that, to the surprise of no one sensible, finds no evidence to back the assertions.
Friday at 8:30 AM eastern time, the Bureau of Labor Statistics will release its monthly Employment Situation Report. In other words, it's Jobs Day!
We'll have the numbers for you when they're available. For now, the context.
On April 30, the Commerce Department reported an awful GDP number for the first quarter of the year. The report could have had a silver lining if it had convinced the Federal Reserve to do more to help the economy. But later that day the Federal Reserve decided to keep their policies exactly the same, arguing that there are signs the economy picked up late in the quarter after a bad winter and that the labor market keeps improving.
The new jobs numbers will help us see whether that was a huge mistake or not.
Reuters' poll of economists is expecting 210,000 net new seasonally adjusted jobs for April. If we hit that, or if we come close and see upward revisions to the February and March numbers, then everything will look fine. But if we fall short of expectations or see downward revisions to the past two months, then it's going to look like the Fed made a big error by standing still in the face of a weak quarter.
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