Unemployment Up

The first week in July brought more bad news about the weak labor market. The Bureau of Labor Statistics announced that the unemployment rate for June rose by 0.3 percentage points to 6.4 percent - a nine year high. Total employment declined this last month for the fifth straight month, with 30,000 lost jobs. Since the start of the recession, total employment has declined by 2.6 million and the private sector has lost 3.1 million jobs. This may be the first administration since Hoover’s where total employment has dropped.

Unemployment Up

The first week in July brought more bad news about the weak labor market. The Bureau of Labor Statistics announced that the unemployment rate for June rose by 0.3 percentage points to 6.4 percent - a nine year high. Total employment declined this last month for the fifth straight month, with 30,000 lost jobs. Since the start of the recession, total employment has declined by 2.6 million and the private sector has lost 3.1 million jobs. This may be the first administration since Hoover’s where total employment has dropped.

The continued weakness in the labor market has made life difficult for those responsible for declaring an end to the recession. (For a recent report see Number Crunchers vs. Recession.) The National Bureau of Economic Research (NBER) is commonly viewed as the authority on the precise dates of the beginnings and ends of recessions. While total output in the economy has risen above its low point, employment has yet to recover from the recession that began in March 2001.

The NBER’s latest announcement, dated July 9th, says that “the committee views real Gross Domestic Product (GDP) as the single best measure of aggregate economic activity,” but that is also uses a variety of other data to determine the exact start and end of a recession. Using only GDP as an indicator, it appears that the recession likely ended sometime at the end of 2001, or the beginning of 2002. A survey of analysts by the Federal Reserve Bank of Philadelphia placed December 2001 as the top choice. (See A Closer Look at Jobless Recoveries, footnote 4.)

If the NBER does announce that the recession ended in late 2001, the current recovery will have proven to be rather weak, especially when it comes to employment. This would make the current recovery only the second “jobless recovery” in U.S. history, the first being the recovery from the 1990-91 recession. Recent analyses by Federal Reserve economists suggest that we are indeed in another jobless recovery. See Another Jobless Recovery?, A Closer Look at Jobless Recoveries, and A Jobless Expansion Isn't All Bad News.

Three major tax cuts occurred in the past three years, with a total cost of around $1.75 trillion over ten years (and this is a gross underestimate since the cost assumes that many of the provisions are allowed to sunset). Each of these cuts was sold as economic and job stimulus. The current employment situation shows that these tax cuts had very little to do with good counter-cyclical fiscal policy, and have left us with another jobless recovery.

Minimum wage down

The federal minimum wage, currently at $5.15 per hour, last increased in 1997, and since then its real value eroded by over 12 percent from inflation.

The Washington Post reported that, last Friday, Sen. Edward M. Kennedy (D-MA) tried to raise the minimum wage from $5.15 to $6.65, but was blocked by Republican opposition.

Without the minimum wage increasing in the next couple years, the real value will likely fall to levels not seen for 50 years. The minimum wage reached a relative low point in 1989 at $4.96 (in 2003 dollars), just 3.7% below the current rate. If inflation averages just 2% over the next two years, and no increase in the minimum wage occurs, the real value will fall to levels not seen since 1955.

Notes:

• For a graph of the inflation-adjusted minimum wage, see figure 1 of Step up, not out from the Economic Policy Institute.
• See the Department of Labor website for a chart of the unadjusted federal minimum wage.
• Inflation adjustments can be made using the calculator found at the Bureau of Labor Statistics CPI Homepage.