The Labor Market Has A Way To Go To Full Employment

The labor market added another 353,000 jobs in January. The Bureau of Labor Statistics revised the estimates for the prior two months up by 126,000 jobs. Amid these strong jobs gains, the unemployment rate stayed at 3.7%. It now has remained below 4% for 24 months, the longest such period since the early 1960s. As employers kept competing for workers, wages for all workers grew by 4.5% over the last 12 months. The unexpectedly strong performance, countering a weaker report one month earlier, led conservative Fox Business commentator Larry Kudlow to pronounce it a “blowout jobs report.”

The labor market still has room to grow, notwithstanding these remarkable measures. Overall employment rates for prime-age workers, those 25 to 54 years old, are still below their historic peaks. This is especially true for men. Many women, workers with disabilities, older workers, and Black and Latino workers continue to face obstacles to finding employment that pays well and accommodates their needs. The labor market is still not at full employment.

The Employed Share Of Prime Age Workers Is Still Below Historic Peaks

The share of workers employed in their prime earnings years — from 25 to 54 years old – is still below its historic peaks. In January 2024, the Bureau of Labor Statistics estimated this ratio to be 80.6%, roughly where it has been for the past 12 months. This is still below the recorded peak level of 81.9% in April 2000. If that rate had prevailed in January 2024, 2.1 million more workers in their prime earnings years would have been in this month’s labor market.

Rising Employment For Women Does Not Fully Offset Declining Employment For Men

The fact that the employed share of prime-age workers is below its peak largely reflects a secular decline of men’s employment. Since hitting its last peak of close to 95% in the mid-1960s, the employed share of men between ages 25 and 54 has trended downward. It stood at 86.2% in January 2024. In contrast, women’s employment-to-population ratio for those ages 25 to 54 grew from a low of about one-third immediately following World War II to its highest level of more than 75% for most of the past 12 months. The labor market has undergone a massive shift in employment from men to women, with millions of people not working.

The reasons for the decline in men’s prime-age employment have been subject to several academic studies in the past. Potential reasons for the decline are: growing health challenges, including the opioid crisis; trade shocks that especially hurt the employment changes of those with less educational attainment; increasing automation in industries that have been traditional employers for men, such as manufacturing; and the growing incarceration of especially Black men. Reviving men’s employment attachment in their prime earnings years would then require a holistic policy approach.

On the other side, women’s employment still lags that of men, even after decades of improvements. The BLS data on a lack of an affordable care infrastructure means that many women, who are often the primary caregivers for their children, their partners and their parents, must choose between working full time and providing care, a New York Times article explains. Addressing the care crisis that befalls many families and hinders mainly women from working due to the gendered nature of care could significantly increase the labor supply of women. After all, there would be more than five million additional women in their prime-earnings years working at this point, if they had the same employment-to-population ratio as men in January 2024.

Employment Options For Workers With Disabilities Still Lag Far Behind

The employment of workers with disabilities also deserves a lot more attention. The pandemic brought about a reversal in disability trends in the population. Since 2020, the number of people with disabilities at all ages has grown especially fast, possibly due to the longer-term effects of the Covid-19 pandemic, a Center for American Progress report and FRED data suggest.

Even as disability issues become more widespread, adequate employment options for disabled workers are difficult to come. The employed share of disabled workers stood at 22.9% in January 2024, per BLS data. To be clear, this is a substantial increase from an employment-to-population of 18.8% before the pandemic in January 2020.

The BLS data suggest that employers often make some accommodations to keep workers with disabilities employed in a tight labor market with overall low unemployment rates. But those accommodations are clearly not enough, reflected in part by the higher unemployment rate of disabled workers. It was 69.3% higher than that for workers without disabilities – 6.6% compared to 3.9% — in January 2024. Many workers with disabilities cannot find adequate employment, even as job openings are well above the levels before the pandemic, FRED data show.

Older Workers Often Find A Difficult Labor Market

FRED figures also reveal more and more older workers are in the labor force. The employed share of workers 55 to 64 years old has trended up since the early 1980s, as has the employed share of people age 65 and older. By January 2024, 37.4% of people age 55 and older were employed, up from less than 30% in the early 1980s.

Many older workers want or need to work longer. But they often run into obstacles to doing so, a Center for American Progress report explains. Older workers face age discrimination, stereotypes, a lack of training opportunities, and incompatibility between expected work schedules and caregiving responsibilities. They end up with few chances to meaningful employment or reemployment. In the end, too few older workers find rewarding employment, even as the population rapidly ages.

Black And Latino Workers Consistently Have Higher Unemployment Rates

Black and Latino workers also face greater obstacles to stable and rewarding work than white workers do. The unemployment rates for Black and Latino workers are consistently higher than those for white workers, BLS data show. In January 2024, unemployment rates for Black workers (5.2%) and Latino workers (5%) were higher compared to white workers (3.5%).

Importantly, unemployment rate differences in BLS data often persist among racialized groups, broken down further by age and education. For instance, the unemployment rate for people with some college education such as an associate degree was 4.8% for Black workers, 3.5% for Latino workers and 3% for white workers in January 2024. These persistent differences among subpopulations further underscore that people racialized as African American or Latino face structural obstacles such as outright discrimination, occupational steering, among others. Put differently, a lot of Black and Latino workers would be employed if many of those obstacles were removed.

Keeping The Strong Labor Market Going Will Increase The Labor Supply

The strong labor market has drawn in many people who otherwise would have found it more difficult to find stable employment. They include many women, older workers, workers with disabilities, and Black and Latino workers, among other marginalized groups. But millions more people are available to work and cannot find stable, rewarding work. The job market is not at full employment with so many workers excluded.

A Center for American Progress report argues that the economy will benefit from a greater labor supply. More workers and a greater diversity of workers can help boost productivity and innovation. Employers, for example, get the benefit from more diverse views that better reflect the population as a whole and thus their customer base. Greater ease for employers to find workers will also translate into fewer disruptions or delays of new, innovative projects, again boosting productivity growth across the economy. When all people who want or need to work can easily find jobs, everybody wins.

It will take a wide range of targeted policy steps to remove the remaining obstacles for many usually marginalized workers to find stable employment. This will take time. In the meantime, it is critical to maintain the strong labor market with significant job gains, low unemployment rates and wage gains that outpace inflation. This will mean that the Federal Reserve will need to tread lightly with its monetary policy. It now has more room to ease up on high interest rates as inflation has eased. The old paradigm of first do no harm applies here, especially when considering those who are often hurt the most in a softening labor market.