For the first time in a long time, the jobs report offered mostly good news. The last month saw decent job growth (just over 200,000, alongside an upward revision to the October numbers), and not just in low-wage sectors. An uptick in hours worked and a small decline in the number of involuntary part-time workers (those that would take full-time work were it available) suggest that we are moving in the right direction. Unemployment dipped to 7 percent even as labor force participation increased—meaning that the rate was falling because people got jobs, and not because they gave up looking.
But the very fact that we are celebrating 7 percent unemployment—a threshold not seen in five years—is itself grounds for caution. We are still a long way—about 8 million jobs by one estimate—from recovering recessionary losses and keeping up with growth in the labor market. An accounting of all the missing workers, who are unemployed or out of the labor market altogether due to the weakness of the labor market, would push the unemployment rate over 10 percent.
This persistent weakness is captured in the graphic below, which places the current business cycle in a longer historical perspective and highlights other measures of labor force weakness—including the share of part-time work, the share of “involuntary” part-timers, and the underemployment rate (which includes the unemployed, those no longer counted as unemployed but who would look for work if conditions were better, and those working part-time because they can’t find full-time work). Of special note here is the persistently high rate of long-term unemployment—over 37 percent of the unemployed (2.6 percent of all workers), a rate that actually inched up in November.
This brings us to the cautions. Some of the eagerness for solid job numbers comes from those who are looking for a signal (or excuse) to shift policy: to rein in the Federal Reserve’s moderately expansionary fiscal policy and to put an end to extended unemployment benefits for the long-term unemployed. Either move would be a serious mistake.
In the absence of decent labor standards or union density, full employment is our best hope for bidding up wages and dampening inequality. As new work from Dean Baker and Jared Bernstein makes clear, we have ample room to push down the employment rate without risking inflation. Even at the point at which expansionary fiscal policy might begin to push up wages and prices, the benefits of full employment would still outstrip the costs.
By the same token, it is the wrong time to think about paring pack unemployment benefits. Long-term unemployment, the target of the extended federal program, shows no sign of abating. In each of the last few business cycles, there has been a point in the recovery at which extended benefits are pared back. But as Jared Bernstein points out, this decision has historically been made when long-term unemployment is less than half its current levels. If extended benefits expire as scheduled, about 1.3 million workers would be cut off in the last week of December (happy holidays!), and another 1.9 million would be cut off in the first six months of 2014.
Colin Gordon is a professor of history at the University of Iowa. He writes widely on the history of American public policy and is the author, most recently, of Growing Apart: A Political History of American Inequality.