The short answer is: shakier than the headline job numbers suggest. Now here is the longer answer... James Hamilton at EconBrowser asks if the new employment figures are really that bad?
The unemployment rate has reached its lowest level of the last four years, and yet some economists still wring their hands in despair over the anemic job situation. I'm having some trouble following their reasoning on this one.
Incidentally, this blog is also worth reading for the fascinating colour-coded map of unemployment rates across the US. Hamilton cites recent gloomy posts Angry Bear and General Glut, which prompted a response by both.
PGL’s second post at Angry Bear gives a long discussion of the labour force participation and employment-to-population ratios, reinforcing the point that the fraction of the population in employment has failed to return to its values of 2000. In his second blog General Glut argues that: Yes, the job market really is weak:
I suggest focusing in on a group of workers who over time are almost always in need of work, who do not wax and wane with educational or retirement opportunities, nor with social trends toward greater workforce participation rates: men age 25-64.
Looking at the quarterly employment-to-population ratio for this group General Glut concludes that at current levels (83.2) are “right where it was three years ago and nowhere close to the levels of the late 1990s.” I think there's no doubt about it: this job "recovery" needs a recovery of its own.
Brad DeLong summarises the case for the prosecution in his blog entry, Four out of five indicators say the job market really is weak:
It's not just employment-to-population ratios. It's real wage growth. It's the relative amount of long-term unemployment. It's payroll employment. We have four of five indicators telling us that the state of the job market is not that good and only one - the unemployment rate - reading green.
So far, so predictable. But two pieces of Fed-inspired research add to the debate.
A Boston Fed Public Policy Brief by senior economist Katherine Bradbury compares changes in participation rates in this business cycle with those in the five previous cycles. In Additional slack in the economy: The poor recovery in labor force participation during this business cycle she finds that:
Measured relative to the business cycle peak in March 2001, labor force participation rates almost four years later have not recovered as much as usual, and the discrepancies are large. Among age-by-sex groups, the participation shortfall is especially pronounced at young and prime ages: Only for men and women age 55 and older has participation risen more than is usual four years after the business cycle peak.
…Depending on the scenario, the current labor force shortfall ranges from 1.6 million to 5.1 million men and women. With 7.9 million people currently unemployed, the addition of these hypothetical participants would raise the unemployment rate by 1 to 3-plus percentage points. Current low rates of labor market participation thus potentially represent considerable slack in the U.S. labor market.
Why the unemployment rate tells a different story remains a great mystery.
Finally, the paper to a New York Fed conference last December by Richard B. Freeman and William M. Rodgers III, The weak jobs recovery: Whatever happened to ‘the great American jobs machine? (PDF), is now online (Economic Policy Review, forthcoming).
All a tad depressing, alas. No wonder we're called the dismal science!
UPDATE: James Hamilton analyses the Bradbury paper and, as usual, has some thoughtful points to make. He takes issues with some of her assumptions:
In calling attention to this fact, I do not mean to be criticizing Bradbury's scholarship. My point is not that there's a right way and a wrong way to control for trends, but rather that there are some fundamental problems with any way you choose to do it, and any conclusions you draw from these exercises need to be very carefully qualified.
Indeed, if you read Bradbury's paper, you'll see that a great deal of her paper is devoted to discussion of these very profound challenges in distinguishing trend and cycle. My concern is more with the way that the pundits have summarized her paper without calling attention to this very great uncertainty about drawing strong conclusions from such numbers.