Many reasons for low job additions in US

In the US, the nation’s employers are creating jobs at less than half the pace they were when this year began, according to a recent government report.

The addition of just 115,000 jobs in April was disappointing, but economists urged no panic just yet. Maybe the unusually warm winter had encouraged companies to do their spring hiring a little early, they offered in one of several theories. Maybe high gas prices, now falling, temporarily discouraged job growth. Better yet, maybe this latest report understates how many jobs were added, since the initial estimates for earlier months have been revised upward.

But no matter which hopeful explanation you choose, America’s 13.7 million jobless workers still look pretty discouraged.

Many economists had been predicting that strong job growth early this year would persuade many people sitting on the sidelines to re-enter the job market.

Instead, for reasons that are unclear, workers continue to peel off the labour force. An estimated 342,000 Americans dropped out of the job market altogether in April. That is why the unemployment rate fell to 8.1 per cent from 8.2 per cent — not because more workers found jobs, but because so many people left the work force.

It’s just one month of data, and the survey numbers are not precise. Still, the figures fit into a longer-term trend.

The share of working-age Americans who are either working or actively looking for a job is now at its lowest level since 1981, when far fewer women chose to do paid work. The share of men taking part in the labour force fell in April to 70 per cent, the lowest figure since the Labour Department began collecting these data in 1948. The decline in labour force participation is partly because baby boomers are hitting retirement age. But economists had expected the wave of retirements to be at least partly offset by the number of workers rejoining the labour force as the economy improved.

“There were a lot of younger people who had gone back to school to get more education and training, and we thought we’d see more of them joining the work force now,” said a senior economist at Goldman Sachs, Andrew Tilton. Instead, the number of young people in the labour force also fell.

“May, June and July — the months when people are typically coming out of schooling — will be the big test,” he said.

College enrollment, particularly among young women, has indeed been growing quickly, which bodes well for the economy in the years ahead. But of course not everyone dropping out of the labour force is doing so to collect more credentials.

With the average duration of unemployment now at an interminable 39.1 weeks, many people have simply given up looking for work. Many of them might have given up months ago, but had clung to the job search because doing so kept them eligible for extended unemployment benefits. As more and more workers roll off those benefits, they are officially stopping their job searches and dropping out.

It’s unclear whether workers will continue dropping out, said President Obama’s Council of Economic Advisers’ Chairman, Alan B Krueger.

“I think you’re going to have crosscurrents,” he said. “One factor is that extended benefits have kept people in the labour force. But then some of the reforms that the president proposed and that Congress has passed will encourage the unemployed to search for a job.”

He cited as an example a federal program granting funds to 10 states that are experimenting with subsidised training and private sector jobs, modeled in part on a pilot program in Georgia. Other job-training and placement programs have been strained by government shortfalls, however. Washington also seems unlikely to engage in additional significant job-creation programs before the November elections. The Federal Reserve, which had helped stimulate the economy in the past when Congress deadlocked, does not seem to be gearing up for more monetary easing, either.

“This keeps the Fed where they’ve been,” Credit Suisse economist Jay Feldman said of the April jobs report, which the Labour Department released. “There could be more stimuli if April turns out to be a new trend, but by itself it’s no provocation for a quick ease.”

Rather than prodding employment growth, the government is actually providing a drag on the economy.

Government spending has fallen for six straight quarters as Recovery Act funds have been exhausted and state and local governments have struggled with tax revenue shortfalls. Accordingly, the public sector has been shedding workers relatively consistently since the recovery officially began in mid-2009, with the exception of a brief spike of temporary hiring during the decennial census. Last month, governments eliminated 15,000 jobs.

Private companies added 130,000 jobs over all, with professional and business services, retail trade and health care doing the most hiring.

“My guess is the weather made job growth look too strong in the first couple of months, and now it looks too weak as payback for the warm winter weather,” said chief United States economist for Capital Economics, Paul Ashworth. “It’ll probably settle somewhere in between.”

Averaging the strong months of total job growth in January and February with the weaker ones in March and April, the economy has been adding about 200,000 jobs a month this year.

Job growth of any kind is obviously welcome. That pace, however, is not nearly fast enough to recover the losses from the Great Recession and its aftermath in the foreseeable future.

At this rate, it would take more than two more years just to return to the prerecession peak in employment, though the country should actually have even more jobs given population growth and the current size of the economy.

Today the United States economy is producing more goods and services than it did when the recession officially began in December 2007, but with about five million fewer workers.

Because employers have learned how to produce more with fewer workers, there is also debate about what exactly “healthy” employment would look like in the current economy, and whether it makes sense to use the data from before the financial crisis as a benchmark.

Productivity fell last quarter, though, which could be an encouraging sign for unemployed Americans, if not necessarily for the employers trying to squeeze more profits out of their existing work forces.

“We have to reserve judgment until we get the final revisions on these numbers,” said chief economist at RDQ Economics, John Ryding. “I’m not trying to be Pollyannaish, but there is enough in this report to suggest that the economy isn’t necessarily slowing.”