The fireworks came early this week when the Bureau of Labor Statistics released its latest monthly jobs report. For the first time in years the report was an unqualified success. Payrolls grew by 288,000 jobs in the month of June—the fifth straight months above 200,000 (for the first time since 2000)—and the unemployment rate fell to 6.1 percent, the lowest it’s been since 2008.
Perhaps the most important statistic in all of this is one that explains the reason for the decline in the unemployment rate. It’s best to think of the unemployment rate like a fraction – the numerator are the unemployed (a person actively seeking work but not finding it) and the denominator is the total size of the workforce. In previous months the unemployment rate fell because discouraged Americans kept dropping out of the labor force—in some cases because the prospect of government benefits was better than the drudgery of a job search—which impacts the denominator.
But reducing the unemployment rate by shrinking the labor force isn’t exactly a true sign of progress. Unless, I guess, you consider Antarctica to be an economic miracle.
Fortunately, this jobs report suggests that we’re finally beginning to address the numerator. The report suggests that the labor force actually grew by 81,000 people, a strong indication that people are being incentivized to start looking for work again.
The question is why this is happening. Sure, one element is simply that the economy is finally beginning to thaw, which spurs some people to jump back into the search. But as Charles Krauthammer points out, there is another reason that is being overlooked by the news media.
“These six months which Obama heralds as the largest, fastest growth in jobs in the U.S. since 1999, have coincided with the six months of which we have no longer extended emergency unemployment, long term employment.”
In December Congress allowed federal emergency unemployment benefits to expire by not including an extension in the two-year budget deal they passed. Democrats, despite steering the negotiations on the budget bill, crowed. They claimed that the economy would tank, that unemployment would rise, and that homelessness would soar. Republicans on the other hand believed that “emergency benefits” should be a temporary measure to assist Americans in the depth of a recession. A broader use risks allowing them to become the status quo and may actually extend the unemployment crisis.
“I do support unemployment benefits for the 26 weeks that they’re paid for,” Sen. Rand Paul told Fox News. “If you extend it beyond that, you do a disservice to these workers.
When you allow people to be on unemployment insurance for 99 weeks, you’re causing them to become part of this perpetual unemployed group in our economy.”
It’s too early to tell if Sen. Paul and others were right, but the latest jobs report does provide some strong data to support their claims. National Review’s Robert Stein reports:
The long-term downward trend in participation since 2000 is tied to the aging of the Baby Boom generation. But the end of extended unemployment insurance at the start of the year is also having an impact. Extended benefits kept some people from working and also kept others, who really didn’t intend to work, in the labor force (so they could keep getting benefits). The end of extended benefits should push down the jobless rate by both encouraging work among those who really want work and discouraging participation among those who really don’t. And, since the start of the year, we’ve had both faster payroll growth and a decline in the participation rate. Further supporting the case that ending extended benefits has helped: So far this year the median duration of unemployment has dropped to 13.1 weeks from 17.1 weeks, the steepest drop for any six months on record.
Those are all tremendously positive signs and certainly provide one more reason to celebrate this July 4th.