FIVE KEY POINTS ON THE LABOR MARKET IN JUNE 2015

1. The private sector has added 12.8 million jobs over 64 straight months of job growth, extending the longest streak on record. Today we learned that total nonfarm employment rose by 223,000 in June—and all those jobs came from the private sector. Although total job growth was revised down somewhat in April and May, much of the revision is attributable to lower government employment than previously estimated. On the whole, our economy has added 2.9 million new jobs over the past twelve months, near the fifteen-year high achieved in February.

2. The labor force grew more slowly in June than it normally does at this time of year, reducing the seasonally adjusted labor force participation rate. June is normally a seasonally strong month for labor force growth, as many new graduates and summer workers enter the labor force. Over the past sixty years, the labor force has grown by 1.8 percent in June on average before seasonal adjustment—more than three times faster than May, the next fastest month. But this June, the labor force only rose 0.4 percent. Accordingly, the labor force contracted on a seasonally adjusted basis, reducing the labor force participation rate. 

One contributing factor was the timing of the “reference week”—the week for which households report their labor force status in the Current Population Survey. Each month, the reference week is the Sunday-to-Saturday period that includes the 12th day of the month. Last month, the 12th was a Friday, pushing the reference week earlier in the month than normal. Accordingly, a smaller fraction of June’s labor force gains were likely captured in this year’s survey than in prior Junes. In fact, since 1955, June labor force growth has averaged 2.0 percent when the 12th has been a Sunday, Monday, or Tuesday, but only 1.7 percent when the 12th has been a Thursday, Friday, or Saturday. That 0.3 percentage-point gap alone represents nearly 500,000 members of the labor force.

3. Since the recession, both the number of workers who work overtime and the number of average overtime hours they work have increased. Both the number of people working more than 40 hours a week and the number of average hours worked over 40 reached their low in early 2010, but have since rebounded by 18 and 10 percent respectively, although neither has returned to its pre-recession average. Growth in both measures was faster from May 2014 to May 2015 than the annualized average rate over the previous four years. Both of these factors boost aggregate overtime worker-hours. This increase in both the number of employees who work overtime and the number of average overtime hours worked emphasizes the need to ensure that workers are fairly compensated for the rising importance of overtime in our economy.

4. The share of workers who are unemployed due to job loss, as opposed to new entrants searching for a job, has returned to its pre-crisis level. The distribution of reasons for unemployment shifts with the business cycle. When overall unemployment is higher, more of the unemployed tend to have lost their previous jobs. When overall unemployment is lower, more of the unemployed are labor force entrants, either new or returning, who have begun job searches. (A third category, the fraction of unemployed who voluntarily left their jobs, is also cyclical but accounts for less of the variation.)  Over the past year, the fraction of unemployed persons who lost their jobs returned to its average level from 2005 and 2006. Notably, the distribution has stabilized over the past eight months, with the breakdown of unemployed looking much like it did before the crisis struck. However, the fraction accounted for by job losses is still above its level from the height of the late 1990s expansion. 

5. The distribution of job growth across industries generally followed recent trends in June, but some industries saw especially weak or strong months. June was an especially strong month for financial activities (+20,000), retail trade (+33,000), temporary help (+20,000), information (+7,000), and other services (+10,000). June was a weaker than usual month in construction (unchanged), wholesale trade (unchanged), utilities (unchanged), manufacturing (+4,000), and leisure and hospitality (+22,000). Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months fell to 0.80 from 0.90 last month, but remained well above the average correlation in previous months.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report and it is informative to consider each report in the context of other data as they become available.

Betsey Stevenson is a Member of the Council of Economic Advisers.

1. The pay gap goes beyond wages and is even greater when we look at workers’ full compensation packages. Women are less likely to have an offer of health insurance from their employer, have retirement savings plans, or have access to paid leave, and perhaps as a result, they are more likely to take leave without pay.

These broader measures of compensation show that the pay gap is not just about differences in earnings or wages. But why do women earn less than men? Let’s break it apart so we can better understand what is driving the pay gap.

2. In the past, men had greater levels of both education and experience than women, but these gaps have closed since the 1970s. While men were more likely to graduate from college in the 1960s and 1970s, since the 1990s, the majority of all undergraduate and graduate degrees have gone to women. While on-the-job experience is also an important determinant of wages, and in the past, women typically left the labor force after marrying or having children, women today are more likely to work throughout their lifetimes. For example, economists found that one-third of the decline in the pay gap over the 1980s was due to women’s relative gains in experience. Today, more of the pay gap is unexplained, leaving a greater role for factors beyond differences in education and experience.

3. Although occupational segregation has fallen, women are still more likely to work in lower-paying occupations and industries. Even when women and men are working side-by-side performing similar tasks, however, the pay gap does not fully disappear. Economists Francine Blau and Lawrence Kahn found that differences in occupation and industry explain about 49 percent of the wage gap, but 41 percent of the wage gap is not explained by differences in educational attainment, experience, demographic characteristics, job type, or union status.

The real question, however, is why men and women end up in different occupations in the first place and what we can do to make it easier for women to succeed in high paying occupations. For instance, from college, women are under-represented in STEM fields, receiving only 35 percent in STEM bachelor degrees. However, even among women who begin a science-related career, more than half leave by mid-career, double the rate of men. Forty percent of those who leave cite a “macho” culture as the primary reason.

4. Motherhood is associated with a wage penalty and lower future career earnings. One reason the gender wage gap has narrowed faster among younger women is that between 1980 and 2013, the median age of first birth rose from 22.6 to 26.0. Because motherhood is associated with a wage penalty and lower wage gains later in a woman’s career these delays in childbirth have helped narrow the pay gap. Research has shown that delaying child birth for one year can increase a woman’s total career earnings and experience by 9 percent. But research shows that a lack of paid leave is one reason mothers with infants leave the labor force and therefore earn less later in life. So policies providing paid sick and family leave encourage women to participate in the labor force and therefore bolster their lifelong earnings.

5. In general, the pay gap grows over workers’ careers. Young people tend to start their careers with more similar levels of earnings and over time the gender gap grows. While some of the growth in the pay gap is because women are more likely to take time out of the labor force and work fewer hours, a pay gap remains even after accounting for time out of the workforce and job tenure. Women get fewer raises and promotions, partially because they negotiate less. But even when women do negotiate, they are likely to receive less than men or be penalized for violating social norms.

While the gap in negotiated salaries are small in situations where bargaining expectations are clear, when expectations and norms are not clear, women receive less than men. On this dimension, increasing pay transparency can help ensure non-discrimination, since even though employers are prohibited from discriminating, in cultures of pay secrecy, it is more difficult to enforce non-discrimination requirements. In addition, other work has also found that women are more likely to be penalized for initiating negotiations. This type of implicit bias leads to gaps that grow over a woman’s lifetime.

In Richmond, California in 1943, approximately 35 nursery school units opened up as part of a city-wide child care program. 

The country was mobilizing around World War II and increasing employment, particularly among women, had become a national priority. In the case of Richmond, the centers opened to help provide care for the children of women working in the nearby Kaiser shipyards.

And here’s how they were funded: Congress had passed the Defense Housing and Community Facilities and Services Act of 1940 -- popularly known as the Lanham Act.

The law was passed in order to fund public works, including child care, in communities with defense industries. Under it, all families (regardless of income) were eligible for child care for up to six days a week, including summers and holidays, and parents paid the equivalent of just $9-$10 a day in today’s dollars. In addition to being affordable, this care was also high-quality. Many centers had low student-teacher ratios, served meals and snacks, and taught children arts and educational enrichment activities. 

So, put quite simply: Most people don’t realize it, but we’ve done this before. And, it worked.

At a time when 60 percent of households with children do not have a stay-at-home parent -- and center-based child care for an infant in three out of five states costs more than tuition and fees at four-year public universities -- we’ve got to act again. 

In his 2015 State of the Union address, recognizing that child care is an economic imperative for families and for our economic future, President Obama announced a proposal to help working families make ends meet while investing more in our nation’s next generation. It’s a plan he elaborated on today with his remarks in Lawrence, Kansas.

The President’s proposal includes a landmark investment in the Child Care Development Fund that guarantees every single low- and moderate-income family with young children can access care. In addition, this proposal would simplify and triple existing child care tax credits to $3,000 a year for young children and ensure that most middle class families are eligible for the full benefit. In addition, he is proposing a new innovation fund that would enable states to better serve families who face unique challenges in securing access to child care. Combined, these proposals would serve more than 9 million children. Looking at the past experiences of the United States, as well as more modern experiences in other countries, these proposals would help parents work, while improving children’s long-term outcomes.

But, let’s go back to the Lanham Act for a minute, because its outcome, and its long-term effects in particular, are telling.

Research finds that the Lanham Act’s provision of high-quality child care provided immediate benefits to parents, children, and families, and also improved outcomes for children in the long-run. In a 1947 study of two centers in Bellflower, California, all surveyed mothers responded that their child enjoyed child care, and 81 percent reported generally favorable opinions of the program. Mothers were particularly likely to note improvements in their children’s social behaviors, and researchers noted the program strengthened family bonds.

A recent study by Chris Herbst (2014) shows that the benefits of the Lanham Act for parents and children were much broader. The study compares young children and mothers who lived in states that received generous amounts of federal funding during the program with mothers and children in states that received relatively little funding, or with children who were older than 12 and therefore ineligible. Access to child care increased mothers’ employment, while also increasing the average work week for those already employed. Moreover, the program also improved children’s long-term outcomes through their working years: an additional $100 in Lanham Act funding increased high school graduation rates by 1.8 percentage points, college graduation rates by 1.9 percentage points, and employment at ages 44-59 by 0.7 percentage point. Overall, the Lanham Act increased participants’ annual earnings by an average of 1.8 percent. Using a summary index of adult outcomes, the per-dollar long-term benefits to children from the Lanham Act are comparable in magnitude to more recent early childhood investments, including Head Start and universal preschool in Georgia. 

The Lanham Act is just one example of how high-quality child care can benefit families and children. The Council of Economic Advisers' report on early childhood investments highlights other work showing that affordable child care has increased maternal employment. Moreover, other studies echo the results of the Lanham Act and show that high-quality care can increase children’s educational attainment, labor force participation, and earnings as adults.

The President’s actions and proposals to make high-quality child care affordable and accessible to all low- and middle-income families aim to realize the success of the Lanham Act for a new generation. Research shows that the early years are particularly important to developing reasoning, language acquisition, and problem solving skills, and that a child’s environment can dramatically influence the degree and pace of these advances. By supporting development when children are very young, early childhood education programs can complement parental investments and produce large benefits to children, parents, and society. The experience of the Lanham Act suggests that while these investments can boost parental employment today, they can also increase children’s educational attainment and earnings in the future.

In the 21st century, we need to once again lead the world in providing universal access to education. Today, the Administration announced a proposal that would give every American willing to work for it the opportunity to receive at least two years of education beyond high school for free. This program will create partnerships with states to help them waive tuition at community colleges for students who maintain a minimum GPA and progress towards graduation, cutting in half the cost of a four-year degree for those who continue their studies. It will also improve the quality of community colleges, by strengthening their ability to prepare students for either four-year programs or occupational programs in key fields such as nursing, information technology, and advanced manufacturing.

At least since Horace Mann led the crusade for free public elementary schools in the 19th century, invoking industrialists’ testimonials about the benefits of better-educated workers, Americans have recognized the critical link between education, a productive workforce, and economic growth. Economists Claudia Goldin and Lawrence Katz describe a virtuous cycle in which investments in education produce workers who are more innovative, and the technologies these workers create increases the demand for skilled workers, which further increases innovation, and so on.

As the country was rapidly industrializing in the early 20th century, a growing awareness of the link between productivity and educational attainment helped foster a grassroots movement that demanded free public schools be expanded from elementary to secondary students in order to provide opportunity for advancement and meet demand for skilled workers. As a result of this “high-school movement” during the early 20th century, the skill level of American workers dramatically increased: Between 1900 and 1975, each generation had completed more than one-and-a-half more years of education than the one before it. Between 1910 and 1950 alone, high school graduation rates skyrocketed from under 10 percent to nearly 60 percent. At the time, universal secondary education was a radical innovation: No other nation came close to providing secondary education to as high a fraction of its citizens until the latter part of the 20th century. And the economy benefited as a result of these investments: Goldin and Katz estimate that increased educational attainment can directly account for about 12-17 percent of economic growth over this period, not including indirect benefits such as greater innovation.

Our history shows that expanding educational access is a key to ensuring that fruits of economic growth are shared by everyone. In the first part of the century, increasing demand for skilled workers driven by technological changes, such as mass production and electrification, was met by rapidly increasing skill levels of the workforce. While education was a valuable investment, the wages of college graduates grew in tandem with those with less education. But after the late 1970s, as the growth in educational attainment plateaued, the needs of the employers adopting computers and other new technologies started to put upward pressure on college graduates’ wages, leaving others behind, and inequality grew. That’s why, today, as businesses continue to innovate and rely on workers with higher-level skills, it’s important that we grow the set of workers who have those skills.

As more and more jobs require post-secondary skills, expanding access to higher education will help America remain competitive in the growing 21st century global economy. By 2020, an estimated 35 percent of job openings will require at least a bachelor’s degree and 30 percent will require some college or an associate degree.

Today, 45 percent of undergraduate students attend one of our nation’s 1,100 community colleges. Community colleges offer students affordable tuition, open admission policies, and convenient locations. For many students, they offer academic programs and an affordable route to a four-year college degree, particularly for students who are generally older, more likely to have children, and more likely to work while in school. They are also uniquely positioned to partner with employers to create tailored training programs to meet economic needs within their communities such as nursing, information technology, and advanced manufacturing.

Employment and wage growth are inherently tied to education and training. Workers with more education are more likely to be in the labor market, they earn more, and they spend less time unemployed. And it is not just workers who benefit — our economy is poised for greater growth when our workers are more educated. The benefits of education have historically given us our economic edge in the global economy. By taking the next step in ensuring access — making two years of community college tuition free and universally available — we can help ensure that our workers remain the most productive workers in the world.

Key Points about Women and the Economy

1. Women’s nonfarm employment has increased by 3.8 million jobs over the last 54 months, and 1.2 million in the last 12 months alone. Women’s employment tends to be less cyclical than men’s, largely because women are less likely to work in industries where employment greatly fluctuates with the business cycle. The recent recession followed that pattern, and women lost far fewer jobs than men. Between December 2007 and February 2010 women lost 2.7 million jobs, while men lost 6.1 million. However, the unusual declines in state and local government during the recovery -- a loss of 744,000 jobs between August 2008 and January 2013 were particularly tough for women who lost 65 percent of those jobs. Over the past year state and local government employment has stabilized and begun to recover adding back 123,000 jobs since January 2013. Since February 2010, women and men have recouped 4.1 and 5.9 million private sector jobs, respectively. This has raised the share of private sector workers who are women from 46.9 percent prior to the recession to 47.9 percent this past August.

2. Across multiple measures, women’s unemployment has declined. As employment has increased since 2010, the unemployment rate has also fallen. The female unemployment rate currently stands at 6.1 percent, the same as for the population as a whole, down from its peak of 9.0 percent in November 2010. The short-term unemployment rate (the fraction of the labor force unemployed for 26 weeks or less) has fallen to its pre-recession average, and while the long-term unemployment rate remains elevated, it has fallen considerably in the past year after more than quadrupling during the recession and its aftermath. Broader measures of labor force attachment also show a marked improvement. For example, averaging across the past 12 months, 0.4 percent of the female labor force is discouraged from seeking work, down from a high of 0.6 percent in early 2011. The share of people marginally attached to the labor force, or discouraged from working, or unemployed has averaged 8.3 percent this past year on a non-seasonally adjusted basis, down from 10.5 percent in early 2011.

3. In the recovery, women’s job gains have been concentrated in education and health services, professional and business services, and leisure and hospitality. During this recovery, many of the job gains have been similar between men and women, although men have gained more construction and manufacturing jobs, and women have gained more education and health services jobs. However, these patterns are not completely unexpected: women have traditionally held more than three-quarters of education and health services jobs, and about one-eighth of construction and less than one-third of manufacturing jobs. The last time the economy added jobs for 54 consecutive months was from November 1996 to April 2001. In general, women’s employment over the most recent period is similar to the previous period across most industries, although there are some notable differences. For example, compared to the previous period, employment growth has been slightly weaker in financial activities, construction, and information services. In contrast, women have gained some manufacturing jobs, while between 1996 and 2001, female employment in manufacturing fell by approximately 200,000 workers.

4. This month, women’s employment growth in manufacturing was particularly strong compared to performance since 2010. In other industries, women’s employment was within the range of the previous 54 months. This month’s employment growth was relatively weak in transportation and other services, and mirroring overall trends, women lost about 1,000 jobs in retail trade. Employment growth for women was particularly above average in construction and information services, and on a seasonally-adjusted basis, women gained more manufacturing jobs this month than at time since July 2000. Like the overall labor market, the pattern of female job growth across industries in August was slightly more divergent from recent trends than earlier this year.

5. Young women are increasingly staying in school, more than off-setting the decline in labor force participation among young women. Fewer young women are neither working nor studying compared to previous generations. Since students, even if they are working part-time, are not considered part of the labor force, only looking at participation rates misses the fact that more and more women are obtaining an undergraduate or graduate education.  Since the mid-1990s, women have accounted for the majority of postsecondary students, meaning that they will account for the majority of our skilled labor force in the future. At the same time that young women are staying in school, however, both men and women are working longer: more than one-third of women 55 and older are working today, compared to less than one-quarter 20 years ago.

Below are seven highlights from each of the seven chapters in this year’s Report:

Chapter 1 introduces the Report and highlights several key areas where progress has been made, but it also lays out the areas where much more work remains to be done. In particular, recoveries from financial crises are uniquely challenging because heavy household debt burdens and tight credit conditions can linger for years, depressing spending and investment. However, as shown in Figure 1-4 of the Report, among the 12 countries that experienced a systemic financial crisis in 2007 and 2008, the United States is one of just two in which output per working-age person has returned to pre-crisis levels. The fact that the United States has been one of the best performing economies in the wake of the crisis supports the view that the full set of policy responses in the United States made a major difference in averting a substantially worse outcome—although it in no way changes the fact that more work remains to be done.

Chapter 2 reviews the economy’s performance in 2013 and discusses the key reasons why the Administration, like other forecasters, expects growth to strengthen in the coming years. Five years removed from the worst of the financial crisis, the economy continues to strengthen and recover, with businesses adding 2.4 million jobs in 2013, the third straight year private employment has risen by more than 2 million. Looking to 2014, one key reason that growth is expected to pick up is that households have made substantial progress in paying off debt, a process known as deleveraging, putting them in a better position to increase spending going forward. As shown in Figure 2-7, household debt has fallen from a peak of about 1.4 times annual disposable income in the fourth quarter of 2007 to 1.1 times annual disposable income by the fourth quarter of 2013. Similarly, debt service (that is, required minimum payments on household debt) has fallen from a high of 13 percent of disposable income in the fourth quarter of 2007 to 10 percent by the third quarter of 2013, its lowest since the data begin in 1980. It is important to note, however, that while these figures paint a picture of improvement in the aggregate, many moderate- and middle-income households have seen little benefit from recent stock market gains and are still grappling with the implications of home prices that, despite recent progress, remain well below their previous highs. Other reasons to expect stronger growth in 2014 than in 2013 include diminished fiscal drag, a recovery in asset values, strengthening among our international trading partners, and demographic forces that are expected to maintain upward pressure on housing starts—although all of these factors need to be balanced against the uncertain risks that can always adversely affect the economy. 

Chapter 3 evaluates the impact of the Recovery Act and subsequent fiscal jobs measures on the economy, finding that they made a substantial and sustained contribution to the level of jobs and output. CEA estimates that Recovery Act alone raised the level of GDP by between 2 and 2.5 percent from late 2009 through mid-2011. This estimate is also within the range of estimates provided by the Congressional Budget Office (CBO) and private-sector forecasters. But the efforts did not stop with the Recovery Act, and in the subsequent years the President signed more than a dozen additional fiscal measures to create jobs and strengthen the economy, including the payroll tax cut, small business tax cuts, incentives for infrastructure, and extended unemployment insurance. Combining the effects of the Recovery Act and the additional fiscal measures that followed, the cumulative boost to GDP from 2009 through 2012 is equivalent to 9.5 percent of fourth quarter 2008 GDP (Figure 3-7). In addition to discussing the immediate macroeconomic impact, Chapter 3 also explains how the Recovery Act kept millions of families out of poverty and made investments in clean energy, education, and infrastructure that will continue to pay dividends long after the Act has phased out.

Chapter 4 analyzes the causes and consequences of the historic slowdown in the growth of health care costs, which has potentially massive implications for families, employers, and the Federal budget. The growth rate of real per-capita health care expenditures from 2010 to 2012 was the lowest since data collection began in the 1960s, and preliminary data and projections indicate that slow growth continued into 2013 (Figure 4-1).  It does not appear that this development is merely an after-effect of the recession, as the slowdown has now persisted well into the economic recovery. Chapter 4 analyzes a variety of factors behind the slowdown, including the Affordable Care Act, which is contributing to this trend by reducing excessive payments to Medicare providers and private insurers, as well as by deploying payment reforms that incentivize more efficient, higher-quality care. This slowdown will help raise incomes, act as a tailwind for job creation and growth, and contribute to deficit reduction.

Chapter 5 discusses the vast advances that have been made in the technology sector in recent years, the broader context of productivity growth over the last 60 years, and the President’s agenda to support research and foster innovation going forward. Figure 5-2 shows that over the last two decades, productivity has grown faster than in the 1970s and 1980s, but more slowly than in the 1950s and 1960s, when rapid productivity growth was fueled by public investments like the interstate highway system and the commercialization of innovations from World War II like the jet engine and synthetic rubber. Recent technological advances have unleashed a great deal of potential, and Chapter 5 discusses steps the Obama Administration is taking to support innovation, in particular expanding the availability and efficiency of wireless spectrum for commercial broadband use and reforming the patent system to ensure that it encourages useful innovation by inventors and limits wasteful litigation by patent assertion entities, also known as “patent trolls.”

Chapter 6 takes stock of the progress that has been made, lessons that have been learned, and ways to take the next step forward in combating poverty 50 years after the start of the War on Poverty. Using new historical estimates of poverty based on modern measurement methods, Chapter 6 presents a more accurate picture of the changes in poverty over the past five decades. Since 1967, the first year for which such estimates are available, the poverty rate has fallen by nearly 40 percent. Crucially, all of this reduction in poverty has come as a result of tax credits and government programs such as Social Security, nutrition assistance, unemployment insurance, among others. Over this time period, expansions in tax credits that support working families have led the Earned Income Tax Credit (EITC) and the refundable Child Tax Credit (CTC) to lift more children out of poverty than any other Federal program. Expansions of the EITC and the refundable CTC enacted during this Administration benefit 16 million families with 30 million children and have helped keep about 1.4 million Americans out of poverty. Altogether, the EITC and the refundable CTC now support 32 million working families, lifting 10.1 million people, including 5.3 million children, out of poverty. Excluding the effects of these programs, poverty would be slightly higher than it was in 1967. Drawing on this crucial insight, Chapter 6 lays out ways that safety net programs can be strengthened, as well as ways to take the next step forward in fighting poverty by raising wages, thereby increasing incomes before government programs kick in. Specifically, the President has called for measures like an expansion of the Earned Income Tax Credit for households without children and an increase in the minimum wage that would raise incomes for tens of millions while alleviating poverty for millions.

Chapter 7 focuses on how high-quality “impact” evaluations of Federal programs can influence public policy for the better, and how they have been used to focus Federal dollars on strategies that work. Figure 7-2 provides a telling example: sharply reducing homelessness is a key Administration focus, and based on evidence from program evaluations, the Department of Housing and Urban Development has re-oriented the Homelessness Assistance Grant Program away from traditional approaches such as transitional housing toward more effective permanent supportive housing. Rigorous impact evaluations such as these have long been supported by the President. In his 21^st Century Management Agenda, the President set bold goals for building a more efficient, more effective government—one which contributes to economic growth and strengthens the foundations for economic prosperity. More work remains to be done however, and Chapter 7 describes opportunities for further progress in building actionable evidence to answer important program and policy questions.