Is the Employment News Really as Good as It Looks?

Posted by Brad McMillan, CFA, CAIA, MAI

This entry was posted on Jul 15, 2014 2:16:00 PM

and tagged Commentary, Employment

Leave a comment

Employment_4Although the headline employment numbers look strong, some say that the underlying reality is actually a lot worse, with few full-time jobs and many discouraged workers. According to the skeptics, it’s a Potemkin recovery, dependent on the fact that many people have simply dropped out of the labor force.

This is a popular meme right now, but the data just doesn’t support it. Using the old “you’re entitled to your own opinion, but not your own facts” methodology, let’s look at the underlying data and draw our own conclusions.

There are three specific parts of the argument that need to be addressed:

  • First, that new jobs are part-time, not full-time.
  • Second, that the decline in the unemployment rate is based on the large number of people who want a job but have given up looking.
  • Third, that the positions being created are low-wage McJobs, such as in retail or fast food.
Are these full-time jobs?

Let’s look at the actual data:

employment_1

The growth rate for full-time workers has been and remains at about the level of the early to mid-2000s. We can see the first-quarter dip, but while growth should certainly be faster, this can hardly be called a disaster. Meanwhile, the number of part-time jobs has declined over the past year or so, even as total employment continued to increase.

During the crisis, the part-time versus full-time argument was true—full-time jobs dropped and part-time jobs skyrocketed—but that hasn’t been the case for the past couple of years.

Another way to look at it, which offers more historical context, is to consider the number of workers who are part-time for economic reasons as a percentage of the total employment population.

employment_2-1

The chart above illustrates two points:

  • First, that the improvement from the crisis is real.
  • Second, that we remain well above previous levels.

Part-time employment, while improving, is still above expectations, and that’s what’s fueling this meme. Even though conditions continue to improve, we certainly have a long way to go.

Are discouraged workers skewing the employment numbers?

Per the second part of the argument, the decline in the unemployment rate is due to the fact that many people have left the labor force; were they included, the real unemployment rate would be much higher. These people are known either as “marginally attached to the labor force” (those who want a job and are looking) or “discouraged workers” (those who want a job but are not looking).

Here again, we see the same pattern. Looking at year-on-year changes, both categories are dropping at an increasing rate, per the following chart:

employment_3-1

The absolute levels show the same declines, but we’re well above what are considered “normal” levels of the past 20 years. Although the improvements are substantial and real, we still have a long way to go.

Are these quality jobs?

The third part of the argument is that the jobs created are low-skill, low-wage, and low-quality—fast-food rather than, say, manufacturing. To start, let’s define what a “good job” is. Wages are the most obvious metric, so we’ll look at average hourly wages for different sectors from the Bureau of Labor Statistics.

employment_4-1

Based on wages, let’s say Leisure and Hospitality and Retail Trade are the worst jobs (just numbers, not a value judgment), while Information and Financial activities are the best (definitely not a value judgment). Note that I’m excluding Utilities, as it’s a small piece of the pie. Now, let’s compare the growth rates of these four sectors.

employment_5-1

Two things strike me about this chart:

  • First, the current change rates are almost identical to where they were 10 years ago. We see the same order by industry, and close to the same magnitudes as in 2000, which suggests current trends aren’t too out of line.
  • Second, the higher-paying sectors, information and finance, did get hit harder and have recovered more slowly than the lower-paying sectors.

Once again, this points to the same conclusion: current trends are moving in the right direction, but we still aren’t close to what was considered normal in the past, especially for the higher-earning sectors.

Is full recovery on its way?

The data shows that the recovery is real, and that these are good jobs at good wages (or at least as much as they’ve ever been). We’re moving in the right direction, and picking up speed.

Even as job growth accelerates, though, we have a long way to go. Those who say that there are fewer good jobs available, and many who want a full-time job but can’t get one, are right. The recovery has been slow, and in many ways uneven, and the damage of the recession lingers.

That said, the improving data suggests that full recovery is indeed on its way. Economic growth comes through trends, and if the trends are positive (like they are now), it will simply be a matter of time. This isn’t to minimize the very real challenges we face, but simply to recognize that full recovery has to come from improving trends over timeand that is exactly what we now see.

5 Ways to Affiliate
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Subscribe via E-mail

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®