by Paige Terryberry
Senior Analyst for Fiscal Policy, John Locke Foundation
Scratching Beneath the Surface Reveals a Struggling Labor Market
Today’s jobs report from the Bureau of Labor Statistics showed impressive labor market gains: 528,000 jobs were added to the national economy, and total unemployment decreased to 3.5% for the month of July, down from 3.6% in June.
The New York Times reported on the national jobs numbers claiming they must mean that not only was President Biden correct about the country not being in a recession, but the jobs data surpassed even the sunniest expectations.
But a closer look at what the jobs numbers measure shows a different story. There are actually two different measures of employment collected by the Bureau of Labor Statistics (BLS). The headline jobs report is measured by the BLS’s “establishment survey.” The unemployment rate is calculated by the “household survey.”
The establishment surveys nationally have shown job growth over the past several months, while the household surveys have shown a decline over the same period. These diverging trends raise concerns on what is really going on below the surface.
The establishment survey counts people on payroll from a survey of businesses. In contrast, the household survey is based on households and includes self-employed individuals and jobs not on traditional payrolls like babysitting or housekeeping. Someone with two jobs can be counted twice on the establishment survey, because they are two different payrolls, but only once on the household survey.
The establishment survey showed 528,000 jobs added to the national economy in July, the figure touted by headlines. But the household survey showed the number of employed to be relatively flat over the month. The household survey also showed a shrinking labor force, which includes the number of employed and unemployed looking for work. Over the last month alone, the labor force shrunk by 63,000 workers. A shrinking labor force, rather than job growth, is the main catalyst for the small decline in the unemployment rate.
The establishment survey shows the total nonfarm employment up by 926,000 since May, while the household survey shows a decline of 136,000 employed persons since May.
Why the significant divergence? Most likely, more people are taking up second and third jobs to combat inflation.
The labor force participation rate has also declined. The pre-pandemic labor force participation rate was 63.4%. Last month, the rate was 62.1%. The labor force participation rate measures the share of the total civilian noninstitutional population that is either working or looking for work.
Job openings continue to exceed the number of workers. And low-wage jobs have been slowest to return. Other troubling news includes a year over year decrease in average hours worked, and wage growth continuing to be outpaced by inflation by a significant margin.
And contrary to what President Biden claimed in a statement today on the jobs data, less people are working today than before the pandemic, according to the household survey.
Indeed, the household survey found that “the number of persons employed part time for economic reasons increased by 303,000 to 3.9 million in July.” If more people take an extra job to help counter inflation, this could be reflected in the positive payroll data.
This does not point to a healthy economy, however.