The administration and many of its media friends are touting the latest employment numbers as an improvement that indicates the employment picture is turning around.
However, in reality, that’s not likely so. An important and useful number is being ignored to make that case. Edward Lazear explains in the Wall Street Journal today:
Although it is often overlooked, a key statistic for understanding the labor market is the length of the average workweek. Small changes in the average workweek imply large changes in total hours worked. The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.
That, of course, has implications that the cheery employment numbers (“cheery” being a relative term considering the last employment numbers were 175,000 jobs created) don’t reveal.
The labor market’s strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.
The total hours worked per week is obtained by multiplying the reported average workweek hours by the number of workers employed. The decline in the average workweek for all employees on private nonfarm payrolls by 3/10ths of an hour—offset partially by the increase in the number of people working—means that real labor usage on net, taking into account hours worked, fell by the equivalent of 100,000 jobs since September.
Here’s a fuller explanation. The job-equivalence number is computed simply by taking the total decline in hours and dividing by the average workweek. For example, if the average worker was employed for 34.4 hours and total hours worked declined by 344 hours, the 344 hours would be the equivalent of losing 10 workers’ worth of labor. Thus, although the U.S. economy added about 900,000 jobs since September, the shortened workweek is equivalent to losing about one million jobs during this same period. The difference between the loss of the equivalent of one million jobs and the gain of 900,000 new jobs yields a net effect of the equivalent of 100,000 lost jobs.
The decline of 1/10th of an hour in the average workweek—say, to 34.2 from 34.3, as occurred between January and February—is like losing about 340,000 private nonfarm jobs, which is approximately 80% greater than the average monthly job gain during the past year. The reverse is also true. In months when the average workweek rises, the jobs numbers understate the amount of labor growth. That did occur earlier in the recovery, with a general upward trend in the average workweek between October 2009 and February 2012.
So in essence, the job numbers we’ve been seeing, even though mediocre in a real sense, aren’t even as good as they seem. And Lazear also points to the Affordable Care Act as another possiblity for declining work hours, although he points out there’s no real data (yet) to back that claim. But there is a bottom line:
The improvement in average weekly hours worked was reason for celebration after the recovery began. The recent decline is cause for concern. It gives us a more accurate but dismal picture of the past two quarters.
Keep track of the average weekly hours worked to get a true picture of how well we’re doing on the employment front. Raw jobs numbers don’t do that. And, as Lazear points out, we’re not doing as well on the jobs front as the administration and its apologists would like us to think we are.