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U.S. economy added 195,000 jobs in June, employment-to-population ratio edges up

This article originally appeared in CEPR's Job Bytes

This article, by Dean Baker, originally appeared in CEPR’s Job Bytes

The Labor Department reported the economy added 195,000 jobs in June. With upward revisions to the prior two months data, this brings the average gain over the last three months to 196,000. While the unemployment rate was unchanged at 7.6 percent, the employment-to-population ratio (EPOP) edged up to 58.7 percent, the highest since last November.

Job growth was again heavily concentrated, with restaurants (51,700), retail trade (37,100) and employment services (18,600) accounting for more than half of the job growth in June. Total job growth in these sectors has averaged 105,000 over the last three months. These are all low-paying sectors to which workers turn when better-paying jobs are not available.

Interestingly, there appears to have been a modest uptick in wage growth with the average hourly wage rising at a 2.1 percent annual rate over the last three months compared with the prior three months. However this acceleration only applied to supervisory workers who saw average wage growth of 3.0 percent over this period, compared with just 1.7 percent for non-supervisory workers.

EOI Board Member Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC

EOI Board Member Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC

Other sectors with substantial job growth in June were health care (19,800) and finance (17,600). This was the strongest growth in finance since March of last year. Construction added 7,000 jobs after losing jobs the prior two months. Part of this weakness is a seasonal issue. The unusually mild winter meant more jobs were added in the winter months, leading to less growth in the spring/summer. Manufacturing lost 6,000 jobs, the fourth straight decline. This is consistent with other data showing continuing weakness in manufacturing. The government sector lost 7,000 jobs with the federal government accounting for 5,000 of the lost jobs. State governments shed 15,000 jobs, but local governments added 13,000.

Most of the data in the household survey was positive. The share of unemployment due to people voluntarily quitting their jobs rose to 8.8 percent, the highest level since December of 2008. The duration measures all fell with the share of long-term unemployed, dropping to 36.7 percent -the lowest since October of 2009. Of course the shortening of the period of benefits has likely been an important factor here as losing eligibility often leads people to drop out of the workforce and therefore not be counted as unemployed. On the negative side, the number of people involuntarily working part-time rose by 314,000 to the highest level since last October.

There were some interesting quirks in the data. The rise in employment-to-population ratio (EPOP) is showing up most strongly among the foreign-born population. The EPOP for the foreign-born population stood at 62.9 percent in June, up 1.3 percentage points from its year-ago level and 3.4 percentage points from the low-point of the downturn in January of 2010. By comparison, the EPOP of the native-born population was 58.3 percent, down by 0.1 percentage points from its year-ago level.

There is also an interesting pattern in unemployment by educational attainment. The unemployment rate for workers without high school degrees fell to 10.7 percent in June. This is down from peaks of more than 15 percent in 2010. Given that their pre-recession unemployment rate averaged over 7.0 percent, there is little evidence of a clear shift in demand away from less-educated workers in the upturn.

This job report was somewhat better than had generally been expected, especially with the upward revisions to the prior two months’ data. There are still serious grounds for concern about the strength of the economy going forward. Job growth is unusually highly concentrated in low-paying sectors.

This is not a sign of a healthy labor market. In this respect, it is striking that we continue to see a respectable rate of job creation in an economy that is growing at less than a 2.0 percent annual rate. The trend rate of growth is usually estimated at 2.2 to 2.4 percent. The other point worth remembering is that even at the 195,000 job pace of the last three months, it would take us to the end of the decade to make up the economy’s 8.5 million job deficit.

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