We must be cautious of drawing firm conclusions from Friday’s US job report, given the impact of Hurricane Sandy. But when placed in the context of all of this year’s monthly data releases, a much clearer picture emerges of the state of the labour markets.
America’s employment situation has steadily improved in the course of 2012. This progress, while very important, is unlikely to constitute as yet the critical mass required to fundamentally alter the underlying dynamics of the economy. As such, more needs to be done by policymakers and politicians in Washington – particularly to reduce the risks of durable impairments to the functioning of the labour market, and the potential threat that this poses for growth and income distribution.
While still high, both in historical terms and relative to what is desirable and attainable, the unemployment rate has trended down for most of the year. At 7.7 per cent, this widely-followed headline number ends the year well below its starting level of 8.7 per cent (and well below the 10 per cent of October 2009). This year’s monthly average for the unemployment rate is now almost a full percentage point lower than the monthly average for 2011. A prominent part of the reduction has come in internationally-competitive sectors, led by manufacturing. Meanwhile those with jobs have seen a modest increase in their earnings in 2012. Average hourly earnings have risen by 25 cents to $19.84 while hours worked increased by just under 2 per cent.
These are welcome indications that the labour market continues its gradual healing after the extreme trauma and severe dislocations inflicted by the 2008 global financial crisis. But these improvements have to be accelerated if America is to fully overcome an unemployment crisis that weakens social cohesion and aggravates inequalities of income, wealth and opportunities. Otherwise, the healing process will plateau, leaving joblessness too high and the labour market too exposed to disruption from exogenous factors, be they domestic or global.
Concerns about the persistent fragility of job creation reflect three realities:
First, the decline in the headline unemployment rate overstates the amelioration in the employment as a whole. About half of the improvement is statistical rather than fundamental: it is due to Americans dropping out of the labour force as opposed to getting new jobs. Indeed, the labour force participation rate ends the year at 63.6 per cent, compared to 64 per cent a year earlier.
Second, with 4.8m Americans unemployed for more than six months now, insufficient progress has been made in 2012 to reduce long-term joblessness. As such, the country still faces too high a risk of skill atrophy and lower labour mobility.
Third, youth unemployment has remained a troubling issue throughout the year. Almost a quarter of the 16 to 19 year-olds in the labour force are yet to secure employment, an alarming dynamic which stubbornly has not changed much all year. Some are at high risk of becoming unemployable as the rank of those looking for work for the first time is bolstered each year by new school leavers.
These realities should be front and centre in Washington given both their immediacy and their long-term consequences. They are not. Instead political “interactions” focus almost entirely on creating, and then addressing, homemade problems, which then play Russian Roulette with the economy – the latest being, of course, the fiscal cliff.
Washington’s bickering sure makes for good theatre and gripping drama. Sadly, it also crowds out efforts to design, implement and sustain the more responsible and visionary economic policymaking that the US desperately needs and should be able to deliver.
Friday’s employment report is yet another reminder that the human cost of Congress’ political dysfunction is real, and its incidence risks spreading to the next generation as well.