On Friday, September 5, the Bureau of Labor Statistics released
its employment estimates for August 2008. Government data shows
that employers continued to shed jobs for the eighth consecutive
month, while the unemployment rate rose to 6.1 percent, a
five-year high. The manufacturing sector experienced
particularly large job losses, mostly in automobile manufacturers.
Temporary employment services also experienced large job
Given such statistics, economic concerns are understandably
weighing on the minds of many Americans. However, these economic
concerns must be considered in the proper context. Job losses are
largely confined to sectors affected by the collapse of the housing
bubble or the high cost of energy. Although the job security of
American workers has deteriorated over the past year, workers still
have much greater job security in this downturn than a generation
ago. Workers are significantly less likely to lose their jobs now
than during the downturns of the early 1980s or 1990s. The economy
faces significant challenges, but it is not in a recession.
August Jobs Report
The Bureau of Labor Statistics August jobs report shows a weak
economy. The household survey shows that the unemployment rate
jumped 0.4 percentage points to 6.1 percent. The establishment
survey shows that employers shed 84,000 jobs during the month. The
manufacturing (-61,000), retail trade (-20,000), and professional
and business services (-53,000) sectors experienced the largest job
losses. Education and health services employment rose by 55,000
Examining employment numbers in greater detail shows that job
losses were largely confined to a few sectors of the economy:
automobile manufacturing and sales and employment services. The
high cost of energy has decreased the demand for automobiles,
causing employment in that sector to fall-45,000 of the
manufacturing jobs lost were in transportation equipment, and
14,000 of the retail jobs lost occurred among motor vehicle and
parts dealers' employees.
Employment losses in the professional and business sector were
almost entirely confined to employment services jobs (-62,000),
especially temporary help services (-37,000). Other fields within
this sector, such as computer systems design (+6,000), showed
modest job gains.
These figures are in accord with other data showing that
companies are not laying off employees in large numbers but are
retrenching by slowing hiring and cutting back on temporary help.
Workers are less likely to leave their jobs than a year ago, but
employers are much less likely to hire new workers. Unemployment jumped
so sharply in part because 250,000 new workers entered the labor
force but did not find jobs.
The jobs report confirms that the economy faces significant
challenges. It does not support the claim by many in the media that
the economy is in a recession. Nor does it support the claim
by some Members of Congress that the promise of the American dream
is in doubt. The economy rises and falls with the
business cycle. The current challenges facing workers are serious
but less severe than in past downturns.
The economy is not in a recession. Economists define a recession
as when the economy shrinks for two consecutive quarters. The
economy has not shrunk over the past year. It grew at a weak 0.9
percent rate in the first quarter of the year and at a robust 3.3
percent rate in the second quarter. The economy faces challenges,
but it is not in-or close to-a recession.
Earnings Growth Masked by Energy
Average hourly earnings rose 0.4 percent in August to $18.14 an
hour. Over the past year average hourly wages have risen 3.6
percent. However, after adjusting for inflation, wages have fallen
1.3 percent over the past year. The rising costs of energy
and food have caused this decrease in workers' spending power.
Adjusting for inflation using a measure that excludes food and
energy prices shows that real wages have risen 1.2 percent over the
past year. Wages are rising-but not fast enough to
keep pace with the prices of energy and food. Congress can boost
workers' real wages by taking steps to address these problems, such
as repealing the ethanol mandate and allowing more oil drilling in
the United States.
More Job Security Than in Past
Any time the unemployment rate rises, workers' concerns about
job security increase. After all, newspapers and other media
outlets usually only highlight the actual unemployment numbers, and
considering the figures contained in the August 2008 Employment
Report, employees may be tempted to assume a pink slip is imminent.
Such concerns are valid, but they, along with any other economic
pronouncements stemming from the August report, must be considered
Job security rises and falls with the business cycle. However,
contrary to the popular impressions, job security has increased
substantially over the past generation. Workers today are
substantially less likely to lose their jobs than in the downturns
of the early 1980s and early 1990s.
Chart 1 shows the probability that workers will be laid off or
fired from their job from one year to the next between 1975-1976
and 2006-2007. These figures end in 2007, the last year
for which data is available. Nonetheless, it shows that in the 2001
recession workers were much less likely to lose their jobs than in
past recessions. Since then, job security has increased
Controlling for changes in education, age, and marital status,
employers are 46 percent less likely to lay off male employees and
29 percent less likely to lay off female employees than in the
mid-1970s. Employees understandably do not want to
lose their jobs, but they are less likely to lose their jobs today
than when the economy was growing strongly in the 1980s.
Challenges for Congress
The economy faces serious challenges. Unemployment rose to 6.1
percent last month, and employers shed 84,000 jobs. However, the
American dream is not on life support. The economy is growing,
workers are more secure in their jobs than in previous recessions,
and workers earnings would be rising but for the high costs of
energy and food. Job losses are largely confined to temporary help
services and the automobile sector.
To get the economy back on its feet, Congress needs to address
energy and food costs. Congress should increase the domestic supply
of energy by allowing offshore oil drilling and the development of
the oil shale in Colorado. These actions will increase the supply
and reduce the cost of energy in the United States in the long
term. Congress should also repeal the ethanol mandate that turns
large portions of the U.S. corn crop into expensive auto fuel.
Repealing the ethanol mandate would make gasoline less expensive.
It would also make food more affordable. Researchers at the World
Bank estimate that ethanol mandates account for three-quarters of
the recent increase in the cost of food. Congress can take
immediate steps to shore up workers earnings and get the economy
back on solid footing.
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
Department of Labor, Bureau of Labor Statistics, "Job Opportunities
and Labor Turnover: June 2008," August 12, 2008, at http://www.bls.gov/news.release/jolts.htm
(September 5, 2008). In June 2008 (the most recent month for which
data is available) monthly job opening rates were 2.6 percent, down
from 3.0 percent a year earlier. Monthly job separation rates were
3.1 percent, down from 3.3 percent a year earlier.
Heritage Foundation calculations using data from the Department of
Labor, Bureau of Labor Statistics/Haver Analytics. Inflation
adjusted using the Chained Consumer Price Index for all Urban
Consumers. Note that inflation adjusted earnings are from July 2007
to July 2008 because August inflation data is not yet
Ibid, inflation adjusted using the core C-CPI-U.
Workers are defined as being involuntarily laid off or fired if
they left their employers in the first year and spent more than two
weeks unemployed between their old and new jobs. See the CDA report
for full details.