Hold the Champagne -- The Job Market is Far from Recovered

Recent media reports have celebrated the strength of the economy based on the high rate of job growth and the low 4.9 percent unemployment rate. Despite this seemingly strong number, a new report from the Center for Economic and Policy Research (CEPR) shows that the labor market is only two-thirds recovered from the Great Recession. This provides little support for the Federal Reserve to raise interest rates now, or in the near future, and instead supports the need for monetary and fiscal stimulus.

The report, "The Case for a Weak Labor Market", analyzes seven measures of the economy that paint a far different picture than the unemployment rate. For example, labor force status flows, worker compensation, the number of job seekers not in the labor force, the duration of unemployment spells, and the rates of employment, involuntary part-time employment, and job-quitting all point to an economy that is not fully recovered.

One key finding from the report is that for every 100 people captured in the unemployment rate, there are roughly 74 people prospective workers not counted as "unemployed" who say they want a job. This indicates significant weakness in the labor market that is not captured formally in the unemployment rate. Another key finding of the report is that the vast majority of people moving into employment weren't technically unemployed the month before they were hired. Rather, about 70 percent of all newly employed workers were counted as "not in labor force" - that is, not looking for work - just one month before they actually found work. This indicates that the number of non-employed Americans looking for jobs is much greater than 4.9 percent of the labor force.

Nick Buffie, the author of the paper, explained that this report paints a compelling portrait of a weak job market: "Fewer people have jobs than they did in 2007, even after you adjust for the aging of the population. Those who do find jobs are too often landing part-time positions, while those who can't find jobs are remaining unemployed for unusually long periods of time. All seven of the paper's metrics reach the same conclusion: the labor market has yet to fully recover from the recession. If we didn't have the unemployment figure, nobody would be talking about raising interest rates."

There has been a constant and serious debate about how the Federal Reserve should set monetary policy. Those favoring higher rates have argued that the labor market is at or near full employment and that it makes sense to begin increasing interest rates. This report suggests the opposite. Given the depressed state of the job market, raising interest rates would throw thousands or even millions of Americans out of work.

You can read the full report here.