Big Payroll Gains and Anemic Labor Force Growth

Employer payrolls scored major gains in April, but the labor force shrank. The latest BLS employment report shows that total payrolls increased 288,000 in April compared with March, with nearly all the gains occurring in the private sector. Public payrolls remain weak, but at least they are growing after four years of decline.

Revisions in previous BLS estimates of job growth in February and March added a total of 36,000 to estimated job gains in those two months. Payrolls have increased an average of 203,000 a month over the past 6 months, somewhat faster than the pace of growth in the previous 6 months, when gains averaged 192,000 per month. Most of the improvement is explained payroll changes in the public sector, which were negative in the six months through October 2013 but were slightly positive in the six months ending in April. Abstracting from monthly variations, estimated job gains in the private sector have been fairly stable since early 2011. Since February 2011 private employers have added slightly more than 200,000 positions a month. In the 12 months through April 2014 they added 198,000 jobs a month.

Total job growth has been slower because government payrolls shrank during most of the economic recovery. After the end of the last economic expansion in December 2007 private sector payrolls sank dramatically and then slowly recovered. By February of this year all the private-sector job losses in the recession were erased. Private payrolls are now more than 400,000 above their peak level in 2007. Unfortunately, public payrolls remain more than a half million below their level at the start of the Great Recession.

Employment rose in many industries in April, with notable gains in professional and business services, construction, mining, and health care. Employment in retail trade rebounded in March and April after shrinking in January and February. The temporary help industry, which is part of professional and business services, continued to see robust employment gains in April, suggesting that private sector payroll gains will continue. Payroll gains estimated in the employer survey are fast enough to gradually whittle down the number of unemployed. Somewhere between 60,000 and 80,000 new jobs are needed every month to keep up with the growth of the working-age population. Over the long run, job gains faster than that should reduce the unemployment rate.

Wage gains remain remarkably restrained given the length and stability of the labor market recovery. Nominal wages increased just 1.9% in the 12 months ending in April, and real weekly earnings have edged up just 0.6% in the year through March. The gradual improvement in the job market has not given workers much extra bargaining power in their fight for better pay.

The exact rate at which the unemployment rate falls depends not only on the growth in the working-age population but also on the willingness of jobless working-age adults to look for work. The April household survey showed a sharp drop in the number of adults actively seeking work. There were 733,000 fewer unemployed workers in April compared with March. The number of unemployed dipped below 10 million for the first time since September 2008. This achievement would seem more impressive if the drop were due to increased job finding among the unemployed. Instead, it was due to a steep decline in the size of the workforce. The number of adults in the labor force dropped an estimated 806,000 in April. Adults reporting they hold a job in the household survey actually fell 73,000. Thus, the 0.4 percent drop in the unemployment rate (to 6.3%) reflected bad news—a smaller workforce—rather than good news.

In a healthy job market we should expect to see the labor force participation rate rebound. Instead, the participation rate is 0.6 points lower than it was one year ago. The number of adults in the workforce is only slightly higher than it was in April 2013. The household survey suggests there are millions of Americans who remain on the sidelines. In a fully recovered job market they would hold a job or at least be looking for one.