Jobs Byte

Government Hiring Helps Tighten Labor Market

November 3, 2006

By Heather Boushey

Data released today by the Bureau of Labor Statistics point to a tightening labor market, although job growth is slowing. The economy added 92,000 new jobs in October. Over the past three months, the economy has added an average of 157,000 new jobs each month. While revisions to the data added a total of 181,000 new jobs in August and September, nearly half of that (84,000) was in government.

The household survey shows a tightening labor market. In October, the unemployment rate fell to 4.4 percent and the employment rate rose to 63.3 percent. The employment rate is at its highest rate in five years, but remains 1.4 percentage points below its peak in April of 2000. Workers with less than a high-school degree saw their unemployment rate fall from 6.4 to 5.8 percent. While this is only a one-month change, it does bring unemployment for this group down to its lowest level since 1999.

Another sign of a tight labor market is that the share of workers who have been out of work and searching for a job for at least six months fell from 18.2 to 16.0 percent, the lowest rate in four and half years. The number of discouraged workers (those who are not in the labor force, but would like to work) is down by 61,000 over the past year.

Job gains were strong in the health care industry, which added 23,000 new jobs last month, and professional and business services, which added 43,000 new jobs last month. Much of the job gains have been due to government hiring. Government employment has risen by 131,000 since June.

While most industries had moderate job gains in October, a few industries are losing jobs. Construction job growth has been flat throughout 2006 and lost 26,000 jobs in October.
Residential specialty trade construction has seen sharp job losses; it lost 31,000 jobs last month and 57,000 jobs over the past year. There were 39,000 jobs lost in manufacturing with a significant share of the job losses in motor vehicles and parts, which lost 15,000 jobs last month, and rubber (tires), which lost 13,800 jobs.

Another sign of potential weakness in hiring in the months to come is that the temporary help sector, which is often seen as an indicator of future permanent hiring, has been flat for the past year. It added 15,000 jobs in October, but this only brings it close to its employment level of last November.

Wages grew by $0.06 in October. The annual rate of nominal wage growth over the last quarter is 4 percent, which means that workers are seeing inflation-adjusted wage gains. This is likely to cause concern at the Federal Reserve given the weak productivity data released yesterday. While employers are paying out more in wages, they are not seeing commensurate gains in output, which implies either lower profits or higher prices.

Most groups of workers are showing employment gains. The employment rate for women over age 20 increased from 58.0 percent to 58.2 percent last month, while the employment rate for men over age 20 fell from 73.1 to 73.0 percent. Both men and women have seen their employment rate grow by 0.4 percentage points over the past year.

Young workers, however, are not showing employment gains, relative to older workers. Over the past year, while employment grew overall, workers aged 20 to 24 lost nearly one percent of their employment and workers over age 25 saw an increase in employment of over 2 percent.

This is the final month of data collection on the employment of evacuees from Hurricane Katrina. In October, the unemployment rate for Katrina evacuees jumped from 8.3 to 11.0 percent. Unemployment remains very high for evacuees who have not returned home, jumping from 14.5 to 17.9 percent. For those who have returned, the unemployment rate increased from 4.7 to 7.0 percent.

Heather Boushey is senior economist at the Center for Economic and Policy Research in Washington, DC

CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report.