Private Employment Continues to Grow and Joblessness Shrinks

The BLS employer survey continues to show steady gains in private sector employment. The survey shows private employers added 196,000 to their payrolls in November. This monthly gain duplicates the pace of improvement in the previous three months, and it is also close to the average rate of private sector job growth over the November 2012 to November 2013 period. Whatever consumers’ and investors’ concerns about political gridlock in Washington or the headwinds created by government fiscal stringency, the private sector continues to add to its payrolls at a fast enough clip to bring down the unemployment rate. Of course, fiscal stringency has had a direct impact on the job numbers. Government payrolls have declined 22,000 over the past 12 months, counterbalancing some of the job gains in the private sector.

The November BLS household survey showed a massive increase in employment—818,000 more adults were employed in November compared with October—but the huge gain was mostly a reversal of the large drop in employment registered in the October survey. Not surprisingly, a big jump in the number of employed also produced a sizeable drop in the number adults describing themselves as unemployed. Unemployment fell 365,000 to 10.91 million in November. This is the smallest number of unemployed since November 2008. The unemployment rate also edged down 0.3 percentage points, reaching 7.0%, its lowest level in five years.

The massive gain in adult employment seen in November’s household survey still leaves a sizeable discrepancy between year-to-date employment gains in the household and employer surveys. Whereas the employer survey shows payrolls increased 161,000 a month since January, the household survey shows the number of employed adults has climbed just 89,000 a month. This monthly gain is too small to have much of an impact on the unemployment rate. (Given the age structure of the population, the number of employed adults must grow about 75,000 or 80,000 a month to keep the unemployment rate from rising.) Nonetheless, the unemployment rate has dropped 0.9 percentage points since January. The source of much of the unemployment decline has been a fall in the labor force participation rate. Though the participation rate climbed 0.2 points in November, it has shrunk 0.6 percentage points since January.

Some of the labor force decline can be traced to population aging, but part of it is due to shrinking unemployment insurance rolls. Since the end of last year the number of unemployed filing continued claims for unemployment compensation has shrunk almost 2 million, or about one-third. The benefit extensions that began early in the recession now offer fewer extra weeks of benefits than they did last year. In addition, many workers who were collecting benefits earlier this year have exhausted their benefit eligibility. Workers who are collecting UI compensation are required to look actively for another job. This requirement may be the primary reason many of them look for job openings and file applications for work, even in a very discouraging job market. When their UI compensation ends, some workers cease looking for a job or look only intermittently. Fewer of them are classified as active job seekers in the BLS household survey. Some will stop being counted as unemployed and in the labor force.

Nearly all extended UI programs are now slated to expire at the end of this year. If Congress does not extend any of the programs the number of long-term unemployed collecting extended UI benefits may drop by about 1.3 million. Many of these workers—currently classified as unemployed and in the labor force—may stop looking for work, thus reducing the estimated size of the U.S. workforce.

The number of workers in short unemployment spells has returned to pre-recession levels, and the data on new claims for unemployment insurance suggests that the layoff rate has returned to pre-recession levels. The serious job challenge facing us is reducing the ranks of the long-term unemployed. If we let the extended UI benefit programs lapse we will reduce the number of long-term jobless who say they are looking for work. However, this will be achieved by reclassifying the status of these workers (from “unemployed” to “out of the labor force”) rather than giving them employment.