The headlines being generated by Friday’s jobs report from the Labor Department – the unemployment rate falling below 5 percent for the first time since November 2007 – are a temptation to have policymakers and some politicians to pull their “Mission Accomplished” banners out of their closets. But this is still not the time to declare that the job market has healed from the damage done by the Great Recession and the anemic response that followed.
There is a lot of talk that if the unemployment rate falls below 5 percent, we have reached “full employment,” and that economic policy needs to turn now to ensuring that the economy does not overheat and spark a surge of inflation. But the biggest mistake policymakers in Washington – from the White House to the Congress to the Federal Reserve – could make right now is to assume that what we’re seeing right now resembles actual “full employment.”
You don’t have to burrow far below the headline numbers to see the signs of work that remains to be done. The fact that job creation in January fell below Wall Street expectations – 151,000 instead of a consensus estimate of about 190,000, is the first signal, especially when combined with the downward revision of December’s initially spectacular report to 262,000.
A particular key number is year-over-year wage growth of 2.5 percent, which when you take out of the picture the extraordinary price drops in fossil fuels in the past year means that wage increases are barely – if at all – keeping pace with increases in day-to-day living expenses.
The job market cannot be declared fully healthy until we see more robust wage gains. Especially since so few private-sector workers have the ability to bargain for wages and benefits through a union, there are only two real wages to spur wage growth: Increase minimum wages, which often causes a ripple that affects workers a tier or two above minimum wage, and spur enough economic growth so that demand for labor exceeds the supply.
We’re not there yet.
The measure of unemployment that includes those traditionally counted as unemployed, plus people who are working part-time even though they want fulltime jobs, plus persons who haven’t been actively seeking work lately but who do want a job – what’s referred to among economists as the “U-6” rate – is at 9.9 percent. It has been around that rate for the past several months.
The latest job openings and labor turnover survey by the Labor Department, in November, recorded 5.4 million job openings. But there are 7.8 million people officially counted as unemployed, another 6 million who want to move from part-time to full-time jobs, and another 2 million who are on the margins. Combine that with weak wage growth and it is no wonder that on the Main Streets of America, it feels far from being a full-employment economy.
It is for good reason, then, that President Obama will propose initiatives in his fiscal 2017 budget that will include a wholesale tax on oil to fund transportation projects – a badly needed job boost for the construction industry as well as a needed augmentation of the weak transportation authorization bill Congress passed last year – and a $5.5 billion jobs program for youths and new entrants to the job market.
These measures would help heal a job market that is still badly bruised by destructive conservative economic policies that brought us the 2008 collapse and put brakes on what should have been a more robust recovery. The proposals, and others like them, will be scorned by the Republican Congress and subjected to demagoguery by Republican presidential candidates. But that will not sit well with the millions of unemployed and underemployed Americans who are waiting for the economic recovery to come to them, no more than the premature celebration of a “full employment” that is far from full.