The latest data on statewide employment came out today, and the numbers look promising. Unemployment fell for the third month in a row, March job growth was strong, and February job growth was higher than previously thought. Raw numbers alone tell us that more people in Massachusetts have jobs today than ever before.
Despite this good news, there’s a reason it doesn’t feel like the best job market ever. It isn’t. The recession was a major blow to the Massachusetts labor market. In fact, you might think of it in just those terms, as having knocked us down a flight of 10 stairs. Since that time, the unemployment rate has made up over half its losses, so by that measure you could say we’ve managed to climb back up six of those 10 stairs.
But there are more comprehensive ways to measure the strength of the job market, and they put us closer to the bottom of the staircase.
There’s more to unemployment than the unemployment rate
The unemployment rate in Massachusetts is now 6.3 percent, which is lower than it has been since 2008 but still substantially higher than the 4.5 percent unemployment rate we had before the great recession.
Useful as it is, the unemployment rate doesn’t tell the whole story. An unemployment rate of 6.3 percent doesn’t mean that 6.3 percent of us are out of work and the other 93.7 percent have jobs. There are too many retired people and kids and college students and stay-at-home parents for that to be true. The unemployment rate only includes people who are either working or actively looking for work. It’s a perfectly sensible definition, but it has one big weakness: people who aren’t actively looking for work aren’t counted.
Imagine there are 94 people in Massachusetts who have jobs and 6 who are actively looking. In that case, the unemployment rate would be 6 percent. But say that after a while those 6 people stop looking for work because there aren’t enough available jobs. At that point, the unemployment rate drops to zero, which sounds great but is actually terrible because everybody looking for a job has given up.
One of the reasons the unemployment rate in Massachusetts and across the US has fallen from its 2009 high is because people have been dropping out of the labor force. Over time, job seekers become discouraged and then they stop being counted. And the effect is to lower the unemployment rate without actually improving the job market.
Looking for an alternative? Try the employment:population ratio.
One alternative is to ignore the question of who is actively looking for work and focus, instead, on who is working. Specifically, check to see how many people there are in our state and then find out how many of them have jobs. If a large percentage of people have jobs, that suggests the job market is strong. When fewer people have jobs, it’s weak. This is called the employment:population ratio. And it suggests that Massachusetts has re-climbed just three of those 10 stairs we fell down during the recession.
Now there are problems with this approach, too. Back in the 1970s and 1980s, for instance, the employment:population ratio rose rapidly, but it wasn’t because of an explosion of new jobs. It was because women were entering the workforce. Sometimes the employment:population ratio is driven by long-term social and demographic changes, rather than the availability of work.
The big social change we need to account for today is the retirement of large numbers of baby boomers. Fortunately, we can avoid this if we focus on the working age population, which includes all residents between the ages of 25 and 54.
On this measure, the number of working-age people with jobs has recovered a bit from the depth of the recession, but it’s still well below where it was in 2007. Back then, 80.3 percent of people aged 25-54 had jobs. As of 2013, the number was 78.7 percent. That may seem like a small change, but when it comes to the employment:population ratio, movements of even one or two percentage points are quite substantial.
Alternative #2, the underemployment rate
Another way to get around the limitations of the unemployment rate is to count those people who aren’t actively looking for work but who would like to work. The underemployment rate does that, and it also counts part-time workers who would prefer to work full-time.
In the years since the recesison, the underemployment has barely recovered at all, climbing up less than 2 of the 10 stairs. It was 7.3 percent in 2007 and 13.2 percent in 2013.
What do these measures tell us?
Looking across these various measures, it seems that six years after the recession began the labor market in Massachusetts still has a good deal more recovering to do. It’s possible that the employment:population ratio and the underemployment rate have improved in recent months (we only have data through 2013). However, the numbers we have suggest we are far removed from a market where people who want good jobs can readily find them.