Unemployment Rises to 9.9 Percent, Driven by Jump in Labor Force Participation

Nominal wage growth has averaged just 1.1 percent over the last quarter.

The Labor Department reported that the unemployment rate rose to 9.9 percent in April as 805,000 people entered the labor force.  Even with the economy generating 290,000 new jobs according to the establishment survey, this was not sufficient to keep the unemployment rate from rising.  The establishment data was revised up for March to show a gain of 230,000 for the month.

Jobs numbers for both March and April were inflated by the hiring of temporary Census workers.  Pulling out the 66,000 Census workers hired in April, the economy added 224,000 jobs.  By comparison, it added over 250,000 a month from 1996 to 2000.

The job gains in April were broadly based.  Manufacturing has turned around and is now a big gainer, adding 44,000 jobs in April after adding 19,000 in March.  The direction is likely to continue to be positive, although probably at a slower pace in future months.  Construction added 14,000, although this may just reflect erratic seasonal factors.

Employment services added 23,400 jobs continuing the growth in this sector that began in October.  The rate of growth in jobs in this sector had fallen sharply, from 70,000 a month between October and January to an average 35,000 a month in the last three months.  Health care added 20,000 jobs, almost exactly its average over the last year.  The leisure and hospitality sector added 45,000 jobs in April after adding 41,000 jobs in March, with restaurants accounting for most of the gains.  State and local governments shed 6,000 jobs.  This job loss will almost certainly accelerate as these governments start to approach their new fiscal year in July.

The picture in the household survey is typical of what would be expected in the early phases of a recovery.  The number of people re-entering the labor force is exceeding the economy’s ability to create jobs.  It is worth noting that the household survey shows much more rapid growth in employment than the establishment survey.  It shows employment rising by 505,000 in April and a total of 1,456,000 since hitting bottom in October.  By comparison, the establishment survey shows a gain of 528,000 jobs over the same period.  Generally the establishment survey is more accurate.

The data shows that the new entrants to the labor market were overwhelmingly white men.  They accounted for 72.4 percent of the growth in the labor force in April.  The unemployment rate for white men rose from 8.9 percent to 9.2 percent, while it inched up from7.3 to 7.4 percent among white women.  The unemployment rate for blacks remained at 16.5 percent even as their employment to population ratio increased modestly to 52.4 percent.

By age, workers over 55 continued to get a disproportionate share of employment.  Employment in this group increased by 187,000.  Since the downturn began in December of 2007, employment for workers over age 55 has increased by 1,647,000.

Employment Level by Age Group, April 2007 - April 2010

Interestingly the employment gains since October have been entirely among less educated workers.  Employment of college grads is down by 474,000, while employment for those with some college is down by 61,000.  By comparison, employment of people with just a high school degree has risen 1,054,000 and employment of people without a high school degree rose by 347,000.

The length of unemployment spells continued to increase, no doubt in part because of the unusually long duration of benefits.  As noted before, this likely affects the mix of the unemployed, not the number.

While this report came in at the high end of most expectations, it is still difficult to be very optimistic about the economy’s near term prospects.  Pulling out the Census workers, the 224,000 pace of employment growth is about 100,000 more than is needed to meet the natural growth of the labor market.  At this pace, it would take 80 months to make up the 8,000,000 jobs lost in the downturn.

There are also many trouble spots ahead.  The trouble in Europe has strengthened the dollar, which will weaken exports.  State and local budget cutbacks will be a substantial source of drag on the economy in the second half of the year.  And house prices are falling again.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR).  He is the author of False Profits: Recovering from the Bubble Economy.  He also has a blog Beat the Press, where he discusses the media’s coverage of economic issues.  This article was first published by CEPR on 7 May 2010 under a Creative Commons license.

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