Demystifying the Latest BLS Data
Despite impressive jobs growth in February, the unemployment rate remained unchanged. Here’s what you need to know about these two figures.
The U.S. government reported earlier this month that the economy added 330,000 new jobs in February and revised previously released data that showed that job growth averaged 250,000 per month over the past three months. The unemployment rate is at 4.1 percent, which is the lowest since 2000.
What you may not have noticed, however, is that despite adding these jobs, the unemployment rate is not going down. In fact, it’s been at this 4.1 percent level since November 2017. How can we be adding all these jobs and yet unemployment isn’t changing?
As many people—but not everyone—knows, the unemployment rate is the ratio of those actively looking for jobs to those in the labor force, while the labor force is the sum of everyone with a job and everyone actively looking. So, the unemployment rate can stay the same even if we add lots of jobs as long as the labor force grows. Some of that happens just because the population is growing. It also occurs when people who had stopped looking come back into the labor market and once again start looking for jobs.
The U.S. labor force jumped by a whopping 800,000 people in the month of February. Where did those people come from? Most had been sitting on the sidelines.
For the past few years, we have been bemoaning the fact that the labor-force-participation rate of men had been declining and wringing our hands about why, despite the apparent booming job market, they had given up looking for work.
This reminded me of an anecdote often told in medical schools: that about 90 percent of the problems that bring patients to see their doctors will get better on their own. The best explanation for what is happening in the U.S. labor market is that those individuals who had given up looking are now coming back into the job market, because there are now more jobs available—so job hunting isn’t a pointless endeavor.
There are still 1.6 million people “marginally attached” to the labor force, which means they want work but aren’t looking. So, the job market could tighten further and still have a lot of workers to draw in.
It’s also worth noting that a month ago there was evidence that wages were starting to rise at a fast clip has receded with the most recent data. Basic supply and demand suggests that prices have to rise when demand starts to exceed supply. The fact that wages aren’t rising very fast suggests that we still have some slack in the labor market.
Here’s another reason why there’s more slack than we may think. The last 10 years have been an incredible buyer’s market for employers. But for job seekers, it’s been quite a different tale: 9 million people lost their jobs and had to begin hunting for new ones, and the Department of Labor’s comprehensive measure of unemployment, which includes discouraged workers, is still above pre-recession levels. One of the things that happens in these really soft job markets is that employers can be picky; they increase job requirements in order to weed out the worst candidates.
That screening-out process associated with very selective job requirements, however, is starting to back down. Recent stories in the press suggest that employers are no longer as concerned about hiring applicants who have criminal records and they are backing off some of the more aggressive drug tests. This makes it easier to hire, and it reduces the pressure to raise wages.
My bet is that the concern about raising wages is far more important to most employers than the concern about hiring less-qualified applicants, and that the backing down on job requirements will continue. None of this suggests that hiring will be easy. After all, how easy should it be to hire the right person and pay them as little as possible? Nor does it say that we won’t eventually hit a point where the labor market will get so tight that wages will rise substantially faster than inflation. But we’re not there yet. The Great Recession created an enormous hole in the economy and we are still digging out of it.