Today's solid jobs report highlights a continuing labor market recovery, but one in which unemployment -- especially long-term unemployment -- remains high relative to recent recoveries (see chart). With inflation running below its 2 percent target, the Federal Reserve faces little if any danger of igniting unacceptable inflation by keeping interest rates low to encourage further job growth.
Unemployment has fallen substantially since peaking at 10 percent in October 2009. At 5.8 percent, however, it's barely below the highest rate reached in connection with the 2001 recession. (Each of the last three recessions has been followed by a "jobless recovery phase" in which unemployment kept rising even as the economy started growing.) Unemployment also fell below 6 percent much sooner after the 1990-91 recession than during the current recovery, on its way down to 4 percent at the peak of the 1990s expansion.
Current estimates of an unemployment rate that's consistent with the Fed's "dual mandate" of maximum employment and stable prices cluster in the 5 to 5.5 percent range. That's below the 6 percent that was estimated for the 1980s but above the 4 percent that was actually achieved in the 1990s.
While unemployment is edging closer to the 5 to 5.5 percent range, other labor market indicators suggest that considerable "slack" remains in the labor market (people not working but who want to be, or people who want to be working more hours than they are). Along with abnormally low labor force participation and elevated levels of people working part time for economic reasons rather than by choice, wage growth continues to be modest relative to productivity and profits, suggesting that labor markets are not yet tight enough to give workers much bargaining power.
Long-term unemployment (27 weeks or longer) remains particularly high. Some 31 percent of the unemployed are long-term, which is higher than at any time before the Great Recession. While the long-term unemployed face problems from the erosion of their job skills due to prolonged unemployment, as well as hiring discrimination based on their long-term jobless status, the evidence suggests that their desire to work and efforts to find jobs aren't noticeably different from other jobseekers.
The cure for unemployment due to economic slack -- including most long-term unemployment -- is robust growth in demand for goods and services. The Fed has a crucial role to play by keeping interest rates low until the labor market returns to normal.
About the November Jobs Report
Employers reported strong payroll job growth in November. In the separate household survey, the unemployment rate stayed at 5.8 percent and the labor force, employment, and unemployment rates were little changed, following substantial improvements in October.
- Private and government payrolls combined rose by 321,000 jobs in November and the Bureau of Labor Statistics revised job growth in the previous two months upward by a total of 44,000 jobs. Private employers added 314,000 jobs in November, while overall government employment rose by 7,000. Federal government employment rose by 5,000, state government rose by 3,000 and local government fell by 1,000. So far this year, federal government employment has fallen by 17,000 while state government has risen by 16,000 and local government by 80,000.
Below are more charts that show how the new figures look in historical context.