For the Job Market, Another Year of Slow Progress

The U.S. job market continued to eke out slow but steady gains in 2013. In the 12 months ending in November, the unemployment rate fell 0.8%, the number of payroll jobs increased 2.3 million, real weekly earnings climbed 1½%, and the number of unemployed workers sank more than 700,000, or a little more than one-seventh. The labor market remains a long way from perfect health, but it is in better shape than it was a year ago.

Since private-sector employment began growing again in March 2010, private payrolls have increased 8.1 million, erasing more than 90% of the job losses experienced in the Great Recession. This still leaves us with 760,000 fewer private-sector jobs than we had when the recession began. Government payrolls shrank in 2013, though at a considerably slower pace than in the previous three years. Since the recession began in December 2007, public employment has fallen 520,000, or about 2.3%. In the 12 months through November 2013 government payrolls slipped just 22,000, however. There are signs that an improving budget outlook may mean that state and local public employment will begin to recover in the next year.

Many indicators suggest that the job market has improved for Americans who are lucky enough to hold jobs. Average hourly pay has edged up, as already noted, and the chances a worker will be laid off have dipped. According to a survey of employers, the layoff rate has fallen about one-third compared with the worst year of the Great Recession. In fact, over the past year the layoff rate has been a bit lower than it was during the expansion phase of the last business cycle. First-time claims for unemployment benefits continued to fall in 2013. Except for a temporary spike in claims connected to the federal government shutdown in October, new claims have sunk to levels last seen in the expansions of the late 1990s and the middle of the last decade.

Workers’ improving confidence is reflected in the quit rate. Employees who are fearful about their job prospects are ordinarily reluctant to leave their jobs voluntarily. In the worst part of the Great Recession the quit rate fell to a historically low level, and it has remained low throughout the recovery. Even though the quit rate remains below where it was in 2006 and 2007, it has increased significantly in the past two years. One reason that real wage gains have been meager and business profits high in this expansion is that workers have a weak bargaining position. If more of them were willing to quit their jobs and seek better paid positions elsewhere, the bargaining power and wage gains of workers might improve.

Though the job statistics continue to improve, the situation facing the nation’s long-term unemployed remains grim. From peak to trough the Great Recession eliminated about 8.7 million public and private payroll jobs. As of November, we still had 1.3 million fewer jobs than we did at the end of the last economic expansion. Because the working-age population is growing, we need employment to grow between 75,000 and 90,000 every month in order to keep the unemployment rate from rising. Although payroll gains since the start of the expansion have comfortably exceeded that monthly threshold, we are only slowly reducing the ranks of the unemployed. The nation needs roughly 7 million more jobs to bring the labor market back to full employment. Given the current rate of economic expansion it will take several more years to whittle down the number of unemployed to reach that goal.

People in long unemployment spells face two hard problems. The first is paying for food, shelter, and other necessities in the absence of a regular paycheck. Unemployment compensation helps with that problem by replacing part of the weekly income provided by a paycheck. The President and Congress strengthened unemployment compensation early in the Great Recession by extending the duration of unemployment benefits from 26 weeks (the usual benefit duration in good times) up to 99 weeks in states with the highest unemployment rates. These benefit extensions gradually shrank as state unemployment rates fell. Unless Congress changes its mind, the benefit extensions will cease altogether at the end of this year, pushing 1.3 million UI recipients off the rolls. People who got a layoff notice after July 2013 will qualify for just 6 months of benefits, even though their job prospects are poor. Many of them will be jobless for far longer than 6 months. When extended unemployment benefits expire in January, the spending power of the nation’s unemployed will be slashed about $20 billion a year.

The long-term unemployed face a second problem. Employers tend to discount job applicants who have been unemployed longer than six or eight months. The longer workers have been on layoff the harder it is for their job applications to receive serious consideration from an employer. When the unemployment rate is high employers do not face much of a penalty for bias against the long-term unemployed. The queue of job seekers is so long that many people in the queue have been jobless for only a few weeks or months. In October 2013, BLS surveys showed there were about three job seekers for every job opening reported by an employer. When the odds are stacked this heavily in favor of employers, they don’t have to worry about overlooking the qualifications of job seekers who have been unemployed a long time. Employers’ bias against the long-term becomes more costly in a tight labor market. When unemployment is low, the applicant queue is short and it is more expensive to overlook resumes of qualified applicants who have been jobless more than six months.

Most Americans with jobs fared tolerably well over the past year. Their wages improved modestly and their chances of getting a layoff notice declined. The unemployed, especially those in long-duration spells, have fared worse. In November 2013 the share of the workforce in an unemployment spell that has lasted at least 6 months was 2.6%. Fortunately, the long-term unemployment rate is lower than it was at its peak in 2010. Nonetheless, it is higher than it was in 42 out of the plast 46 years. The nation’s holiday gift to this long-suffering population is to lop off several months of benefit eligibility for unemployment compensation. It is hard to see the economic benefits that will flow from their sacrifice.