The typical American judges the state of the economy by the quality of the labor market. If jobs are scarce and wages are flat or falling, decent increases in the gross domestic product or the stock market are almost irrelevant. Aware of this point, President Obama convened yet another White House meeting on jobs earlier this week. After all, his own job is on the line.
To be sure, the administration has some good news to report. The most recent Bureau of Labor Statistics news release on the employment situation reported an unemployment rate of 8.5%, down from the previous month and considerably below the peak rate of 10.1% in October 2009. Jobs grew by 200,000 between November and December, which is enough to reduce the unemployment rate, albeit slowly.
Initial unemployment claims fell to 352,000 last week. New claims have been in the high 300,000s-range—not good, but way down from a peak of 618,000, the average during the second quarter of 2009.
There are 225,000 more workers employed in manufacturing and 46,000 more in construction than a year ago. These are small increases in percentage terms (2% and 1% respectively), but the trend is in the right direction. Jobs in the service sector (70% of the labor market) are up by about 1.5 million, or 2%, over the year.
There is another illuminating source of data on the labor market. The Bureau of Labor Statistics' Job Openings and Labor Turnover Survey (Jolts) reports the number of hires and separations each month, and further divides separations into quits and layoffs. One encouraging sign is that the number of quits has risen above the number of layoffs.
During strong economies, workers quit to move to better jobs. During weak ones, layoffs rise and quits fall because jobs are less readily available. For over a year now, quits have exceeded layoffs and the gap has grown during the past few months.
So does this paint a rosy picture for Mr. Obama? Not exactly. An improving situation isn't the same as a good situation. The labor market is still very depressed and is likely to remain so for quite some time. There are a number of indicators that show how bad things are for the typical job applicant.
According to the Jolts data, the number of monthly hires today, at a little over four million, is just slightly higher than it was in January 2009. Hires need to increase by over 30% to get back to 2007 peak levels. During the three years since January 2009, they have increased by 4%.
The low level of hiring bodes ill for those without a job. Because the number of unemployed is high and the number of hires is low, the statistical likelihood that an unemployed worker will find a job is just over one-third as high as it was in 2007. Differences this great are noticeable to the unemployed. The positive changes in the labor market have not substantially improved the chances of finding a job.
Furthermore, the recent favorable employment numbers may be transitory. The two months that preceded last month's 200,000 job-growth figure recorded about half as much job creation—so it is too soon to say whether this is a trend or just a blip. But even if 200,000 jobs are added each month, it will take about four years to get back to the employment levels that prevailed at the peak. Also, over the past year, the proportion of the population in the labor force (defined as working or seeking employment) has actually declined to 64% from 64.3%. That tends to make the unemployment rate look better than it is.
There is one other troublesome factor. The labor market is fluid, and each month about as many workers are hired as are separated from their previous jobs. The hiring that occurs to replace lost workers is called churn. As James Spletzer of the Bureau of Labor Statistics and I show in a forthcoming article in the American Economic Review, churn hiring accounts for about two-thirds of all hiring. Churn is generally good for workers and good for the economy because workers move to better, higher-paying jobs where they are more productive. The typical wage increase when moving to a new job is around 8%. But churn is down by over 35% from the pre-recession level during the last quarter of 2007.
This means that even people with jobs aren't doing as well as they should be. Because of the slack labor market, many are stuck in their current jobs, earning less than they would in a vibrant economy.
Labor-market statistics will provide ammunition for the presidential campaigns. Each will cherry-pick numbers to bolster its case. But most people are unlikely to be persuaded much by the rhetoric. Despite recent improvement, a bleak labor market is what they confront every day.
Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-2009, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.