The Lukewarm 2004 Labor Market

Despite Some Signs of Improvement, Wages Fell, Job Growth Lagged, and Unemployment Spells Remained Long

The labor market showed some signs of improvement in 2004; most notable in this regard was the job growth that occurred in every month of the year. This was the first year of consistent job growth since 2000, signaling the end of the jobless recovery. The unemployment rate also showed improvement, falling from an average of 6.0 percent in 2003 to an average of 5.5 percent for last year. On the other hand, several other indicators and comparisons depict a labor market that remains distinctly weak.

  • Among nearly all groups of workers, wages fell, relative to inflation. Inflation-adjusted wages grew throughout the recession of 2001 and the jobless recovery that followed. However, by 2003, the persistently weak job market began to take its toll on wage growth, and last year the hourly wages of most workers either remained flat or dropped relative to inflation. (Throughout this analysis, all wage changes are expressed after making an adjustment for inflation.)This period also represented a return to growing wage inequality, as wages grew faster among workers at the top of the wage spectrum than among other workers. For example, among men, the hourly earnings of the worker right in the middle of the wage spectrum was essentially the same in 2004 as in 2000 (down 0.2 percent), while hourly earnings rose 7.7 percent for the worker at the 95th percentile (five percent of workers have wages higher than this worker, 95 percent have wages lower than this worker).

    Further, from 2003 to 2004, the only education group that experienced wage gains was the group where workers had been to graduate school. All other groups — workers with less than a high school education, with a high school education, with some college, or with a college degree — experienced either flat or falling wages.

  • Over the course of 2004, job growth fell 1.4 million short of the amount that would be typical for a recovery. Since the end of World War II, at this stage of the recovery job growth has typically occurred at a pace that would generate about 300,000 jobs a month. This is the same benchmark that was used when, in early 2004, the Bush Administration forecast that 3.6 million jobs would be created from December 2003 to December 2004.The 2.2 million jobs created in 2004 thus fell 1.4 million — or nearly 40 percent — short of the level typically experienced at this stage of a recovery.

    This shortfall indicates that the drop in the unemployment rate thus did not reflect robust job growth. Instead, it reflected an unusually slow pace of labor force growth. In 2004, the labor force grew more slowly than it had in 13 years.

  • Due to the relatively modest amount of job creation, long-term unemployment levels remained exceptionally high, with the number of unemployed individuals exhausting their regular state, unemployment benefits and not receiving additional aid hitting a record level of 3.5 million. Though long-term unemployment began to trend down somewhat in 2004 its level continued to be high. There were more than twice as many long-term unemployed — unemployed individuals who have been seeking a job for at least a half a year — in December 2004 as in March 2001, when the downturn began. The long-term unemployed have been more than one in five of the unemployed for 27 straight months, an unprecedented development in the post-WWII period. Also, in 2004, some 3.5 million individuals used up all their regular unemployment benefits before they found a new job, and did not qualify for additional federal aid. For some period of time, they thus went without either a paycheck or an unemployment check. This level of unmet need was larger than during any other year on record, with data going back to 1973. It suggests that the temporary federal unemployment benefits program — which provided aid to workers who have exhausted their regular, state benefits — was ended too soon (the program quit providing aid to new exhaustees as of the end of December 2003).