Note: Another blogging snafu as this post failed to go out in time for the 10am newsletter. Apologies
Remember the debates about structural unemployment back during the beginning of this recovery in 2009 and 2010? The question was whether policymakers would write off a whole cadre of workers as ‘unemployable’ and formulate policy as if they weren’t important. After the April jobs report, I think we have our answer and this matters for future economic growth.
The employment report released today by the US Bureau of Labor Statistics shows the US economy adding 211,000 jobs in April, with the unemployment rate falling to 4.4%. These figures are both better than expectations of 190,000 jobs and 4.6% unemployment. Additionally, the broadest measure of unemployment has continued to fall to 8.6% from March’s 8.9%.
A few superlatives here: the lowest unemployment rate in 10 years, the lowest broad measure of unemployment in 10 years, and the highest jobs to population ratio in eight years. These are numbers that the Fed will see as an indication of a tightening labor market, giving it cover to raise interest rates in June.
But if one steps back from the broad strokes, one data point stands out. That is the fact that over the last two decades, the broadest level of unemployment – the U-6 number — has risen relative to the baseline unemployment rate.
Source: St. Louis Fed
What this effectively means is that more people are marginally attached to the labor force or working part-time for economic reasons. The differential in baseline and broad unemployment is 4.2% now versus a low of 3.4% in 2006 and 2.9% in 2000. We should think of these people as people who want a full-time job but can only get part-time, or people who want a job but have almost given up looking. And the increase here points to a lower quality recovery.
Moreover, if you look at the kinds of jobs being created, half of the 193,000 private sector jobs created in this report were in low-wage sectors like retail and leisure. Only one in every ten were in the goods-producing sectors Donald Trump favours.
Why this matters. It’s clear the Fed sees these people as ‘unemployable’ and is moving to adjust policy for the rest of the workforce. Potential growth will be constrained if a whole segment of people are ‘unemployable’. And so while the numbers will be met with relief, the overall picture regarding potential output growth is murkier.