Monday, April 4, 2011

Comments on Friday's employment numbers


Friday's employment numbers, which were positive, were presented as evidence that the economy was quickly headed toward a much improved job market.

According to the BLS press release:
Nonfarm payroll employment increased by 216,000 in March, and the unemployment rate was little changed at 8.8 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, leisure and hospitality, and mining. Employment in manufacturing continued to trend up.

The number of unemployed persons (13.5 million) and the unemployment rate (8.8 percent) changed little in March. The labor force also was little changed over the month. Since November 2010, the jobless rate has declined by 1.0 percentage point.


According to the household survey, total employment is still about 6.3 million jobs below the 2008 peak level. To return to more "normal" unemployment rates, the economy will need to add back these 6.3 million jobs while also adding additional jobs to absorb new workers who have entered the labor force since the recession began in December 2007. (This will take several years even at March's robust rate of job creation.)

Many of these potential workers have not yet entered the labor force, however, for a variety of reasons. We do know that labor force participation is at the lowest level seen since the early 1980s, and participation will likely increase as the job market improves. The downward trend in total labor force size has, however, pushed the unemployment rate down somewhat since the unemployment rate is a function of both total employment and of the total labor force.

As the graph shows, the labor force has been shrinking as young workers and old workers have put off either entering or re-entering the work force in the face of high unemployment. Consequently, as total employment increases, the labor force will grow as well, and this will likely extend the time necessary for the unemployment rate to fall significantly.

See also: our note on national and state unemployment rates compared.