Less than 10 days remain until the 2024 U.S. presidential election, and economic livelihood remains a focal point of concern for the vast majority of voters, as well as a central issue for both the Republican and Democratic parties.
In September, the official unemployment rate was reported as 4.1%, showing a slight decrease from August’s 4.2%. This relatively low level is seen as indicative of full employment. The September nonfarm payroll report revealed a significant growth of 254,000 jobs, exceeding economists’ expectations. However, a research report from the University of Michigan indicates that consumer sentiment remains somewhat bleak. So, why is this the case?
As widely known, unemployment data is released by the U.S. Bureau of Labor Statistics (BLS), a government agency. This data is not based on the total number of people receiving unemployment benefits but rather on a survey conducted by the U.S. Census Bureau for the BLS each month.
During the reference week of the survey (typically the calendar week that includes the 12th of the month), interviews or phone surveys about labor force status are conducted with 60,000 sampled households. When it comes to national employment, not only are regular full-time labor force participants taken into account, but also all part-time and temporary workers. Therefore, technically speaking, if a person worked for one hour on the 11th day of the month and was laid off for the rest of the month, that person would still be considered employed in terms of statistical unemployment – excluding those discouraged workers who have dropped out of the labor force and are no longer actively seeking work because they believe there are no suitable jobs for them. Hence, they are not included in the unemployment statistics.
The nonfarm payroll survey, also known as the establishment survey, is another survey conducted monthly by the BLS on approximately 119,000 businesses and government entities representing around 629,000 workplaces. Active samples include about one-third of nonfarm payroll positions. According to data released by the BLS, nonfarm employees constitute about 80% of U.S. business sectors that contribute to the gross domestic product.
There are some notable exceptions in the total nonfarm payroll figures, such as government employees including military personnel, private household workers and domestic helpers, owners like sole proprietors and self-employed workers of unincorporated businesses, and employees of nonprofit organizations, among others. These excluded categories consistently make up about 5% of the total employed workforce.
In conclusion, nonfarm payroll is a subset of total employment. However, some peculiar occurrences are worth noting. During this administration, the growth rate of nonfarm employment has exceeded the growth rate of total employment, and this discrepancy has become more pronounced over the past two years. How is this possible? Could some jobs be included in nonfarm employment data but not in total employment data? Or are there inaccuracies in the nonfarm employment data?
While the unemployment rate data suggests a thriving economy, the U.S. labor force participation rate has never fully recovered to pre-COVID-19 pandemic levels; in fact, it hovers below the average level of the past 50 years. The decline in labor force participation signifies a higher proportion of people unable or unwilling to work at current wage levels.
Upon closer examination of the labor force participation rate, it appears that the decline primarily targets native-born labor force participants, while the labor force participation rate of foreign-born workers is on the rise. In September, the number of employed foreign-born individuals reached 31.4 million, an increase of 4 million compared to September 2019 (pre-COVID-19 pandemic). During this period, the number of employed native-born individuals decreased by 454,000. Clearly, job growth is being driven by foreign-born workers rather than native-born workers.
Considering that nonfarm payroll data is based on employer surveys and does not verify employees’ immigration status, while employment data is based on surveys of eligible households, it is highly likely that undocumented immigrants are included in nonfarm payroll data but not in employment data. The estimated surge in the number of undocumented immigrants up to 11 million may not only be a key factor altering the labor force situation but also a contributing factor to why nonfarm payroll exceeds overall employment.
When breaking down employment data into part-time and full-time employment, it is observed that full-time employment (measured on the left vertical axis by the orange line in the chart below) did not increase in 2024. Recent employment growth stems from part-time employment (measured on the left vertical axis by the blue line in the chart below).
In the substantial job growth in nonfarm employment figures for September, the industries of education and healthcare services saw the largest increase, with social assistance jobs growing by 27,000 positions. The next largest increase was seen in the leisure and hospitality industry, followed by the government sector. Employment in food services and drinking places, vital components of the leisure and hospitality industry, added 69,000 jobs in September. Other major industries such as mining, trade, transportation and utilities, information, financial activities, professional and business services, and other services saw minor changes in employment numbers. In contrast, there was a monthly decrease in manufacturing employment.
Turning attention to employment sectors requiring relatively higher levels of education, some troubling trends emerge. The decline in labor force participation rate among individuals aged 25 and older with at least a bachelor’s degree is more significant than the overall participation rate of native-born individuals.
Indeed, this phenomenon aligns with the findings of a study published by the Economic Policy Institute based in Washington, D.C., titled “Fastest wage growth over the last four years among historically disadvantaged groups.” The study reveals that from 2019 to 2023, hourly wage growth was strongest for the lower end of the wage distribution, driven by labor shortages and minimum wage requirements prompted by the COVID-19 pandemic, while actual wage growth for the middle class was much more modest.
The U.S. Bureau of Labor Statistics routinely revises its released data. In August of this year, the BLS downwardly revised nonfarm payroll positions by 818,000 for the 12-month period from April 2023 to March 2024, a nearly 30% decrease from the initially reported figure. The industry with the largest downward revision was professional and business services, which saw a decrease of 358,000 jobs.
Are more significant adjustments on the horizon? Each year, the BLS conducts a broader revision after receiving the results of the quarterly employment and wage census. However, this revision will likely occur after the presidential election.
Piecing together these fragments helps us unravel the myriad mysteries within the U.S. job market. The recently created jobs, if not subject to substantial downward revisions again, mostly stem from low-income and part-time positions filled by foreign-born laborers, a segment of which may include a considerable number of undocumented immigrants. We have not witnessed growth in manufacturing employment, and even with the substantial increase in nonfarm payroll positions in September, it has not brought positive news to high-paying sectors such as information, financial services, professional services, and business services. Consumers have not overlooked these realities, which may contribute to their low morale.
Of particular concern is the decline in native labor force participation rate, as well as the significant decline in labor force participation rate among populations aged 25 and above with at least a bachelor’s degree. Even more astonishing is that these facts are rarely discussed publicly. Urgent measures are required to safeguard the U.S. citizens’ labor market, rather than neglecting them amidst the tumultuous job market our economy is currently navigating.