Unemployment holds steady for much of 2016 but edges down in the fourth quarter

The number of unemployed and the unemployment rate both declined during 2016, continuing their downward trends. In the fourth quarter of 2016, 7.6 million people were unemployed and the unemployment rate was 4.7 percent, 0.3 percentage point lower than a year earlier. Employment, as measured by the Current Population Survey (CPS; see accompanying box), expanded by 2.5 million in 2016, about in line with the gains in the previous year. After rising between the fourth quarter of 2015 and the first quarter of 2016, the employment–population ratio held fairly steady, ending the year at 59.7 percent in the fourth quarter. The civilian labor force—the sum of the employed and the unemployed―grew by 2.1 million, to 159.6 million. The labor force participation rate, at 62.7 percent in the fourth quarter of 2016, was little changed from a year earlier.¹

This article examines the behavior of key labor market indicators from the CPS in 2016 and takes a detailed look at these indicators by various demographic characteristics, including age, gender, and race and ethnicity. In addition, the article explores changes in usual weekly earnings, duration of unemployment, and labor force flows and reviews the employment situation of veterans, people with a disability, and the foreign born.

Unemployment

Both the number of unemployed people and the unemployment rate were down over the year. Total unemployment declined by 353,000, to 7.6 million, in 2016. The unemployment rate declined to 4.7 percent in the fourth quarter, down by 0.3 percentage point over the year. Most of the improvement in the unemployment measures occurred in the fourth quarter of 2016. Unemployment has been declining since the first quarter of 2010, although the rate of decline in these measures has tapered off in recent years. (See table 1 and figure 1.)

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Changes in the unemployment rate in 2016 varied across demographic groups. In the fourth quarter of 2016, the jobless rates for adult men (4.4 percent) and adult women (4.3 percent) were both down over the year, while the rate for teenagers (16 to 19 years of age) was little changed, at 15.2 percent. Among the major race and ethnicity groups, the unemployment rate for Blacks was much higher than the rates for other major race and ethnicity groups. Over the year, the unemployment rate for Blacks declined by 0.9 percentage point, to 8.1 percent, the lowest rate since the third quarter of 2007. The rate for Asians declined by 0.8 percentage point, to 3.0 percent in the fourth quarter, and the jobless rate for Hispanics fell by 0.5 percentage point, to 5.8 percent.² In contrast, the unemployment rate for Whites, at 4.3 percent, was little changed from a year earlier. (See figure 2.)

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Unemployment rates in 2016 continued to be higher for workers with less education than for those with more education. Among people 25 years and older, the jobless rate for those with less than a high school diploma was over 3 times higher than the rate for those with a bachelor’s degree or higher. The unemployment rate for those with less than a high school diploma edged up 0.7 percentage point, to 7.7 percent by the end of the year. The unemployment rate for high school graduates was little changed, at 5.1 percent in the fourth quarter of 2016, as was the rate for those with at least a bachelor’s degree, at 2.4 percent. The jobless rate for those with some college fell by 0.4 percentage point, to 3.9 percent. (See table 2 and figure 3.)

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In 2016, jobless rates varied across the major occupation groups.³ The rate continued to be lowest in the management, professional, and related occupations, although it edged up to 2.3 percent from 2.1 percent in 2015. The jobless rate for service occupations decreased by 0.9 percentage point, to 5.7 percent, and the rate for sales and office occupations declined over the year, to 4.2 percent. The jobless rate was little changed over the year for natural resources, construction, and maintenance occupations (6.3 percent) and for production, transportation, and material moving occupations (5.6 percent). (See table 3.)

Despite some relief in recent years, the proportion of people unemployed for long periods of time remained high by historical standards. In the fourth quarter of 2016, 1.9 million people were long-term unemployed (defined as those who were jobless for 27 weeks or longer); this number was down 211,000 from a year earlier.⁴ The long-term unemployed made up about 25 percent of the total unemployed in the fourth quarter of 2016. Although much lower than the historical high of 45.1 percent in the second quarter of 2010, the proportion of long-term unemployed was still notably higher than the prerecession figure of 17.8 percent in the third quarter of 2007.⁵ (See table 4 and figure 4.)

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The number of people unemployed for a year or longer (1.2 million in the fourth quarter of 2016, not seasonally adjusted) edged down in 2016. This number represents 16.8 percent of the total unemployed in the fourth quarter of 2016, the lowest proportion since the second quarter of 2009 (14.2 percent). The number of people who were jobless for 99 weeks or longer, or about 2 years, was 565,000 in the fourth quarter of 2016. Despite declines in recent years, about 8 percent of unemployed people had been jobless for about 2 years or longer at the end of 2016—still well above prerecession levels.⁶

The CPS categorizes the unemployed by reason for unemployment. The four groups are (1) job losers and people who complete temporary jobs, (2) job leavers, (3) reentrants, and (4) new entrants. The number of people unemployed because they lost their job continued to decline in 2016, reaching a level of 3.6 million by the end of the year. Job losers accounted for the largest share of the unemployed―47.9 percent in the fourth quarter of 2016. Job losers are divided into two categories: people on temporary layoff who expect to be recalled to their jobs and people not on temporary layoff. Those in the latter category do not expect to be recalled; they are further categorized as either permanent job losers or people who have completed temporary jobs. (See table 4 and figure 5.)

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The number of unemployed reentrants into the labor force continued to decline, falling by 175,000 over the year and reaching 2.3 million in the fourth quarter. Reentrants are people who had previously worked but were not in the labor force before actively seeking work again. Reentrants accounted for about 3 in 10 of the unemployed at the end of 2016. The number of unemployed job leavers (people who voluntarily left their jobs) rose by 133,000, reaching 928,000 in the fourth quarter of 2016. The number of new entrants to the labor force (job seekers who have never worked before), at 767,000 in the fourth quarter, showed little movement over the year.

Labor force flows

In a given month, millions of people move between the three labor force states: employment, unemployment, and not in the labor force.⁷ Labor force status flows measure this labor market “churn” and capture the underlying movement between the monthly stock (or point-in-time) estimates. In 2016, 16.2 million people, or 6.4 percent of the population 16 years and older, changed their labor force status in an average month. This represented the lowest rate of labor market churn since flows data became available in 1990. The series peaked at 7.5 percent of the population in 2010, in the aftermath of the most recent recession (2007–09).

One can better understand unemployment by using flows data to analyze the current employment status of people who were unemployed in the previous month. Figure 6 shows the proportions of the unemployed who found a job, remained unemployed, or stopped looking for work and left the labor force over the month. These proportions are calculated as 3-month moving averages. The likelihood of an unemployed person finding a job was 25.7 percent in December 2016, little changed from a year earlier. Before the start of the last recession, the rate was 26.9 percent. The year 2016 was the second consecutive year in which unemployed people were about as likely to become employed as they were to leave the labor force. From 2009 to 2014, a higher proportion of the unemployed stopped looking for work than found a job. These measures have been moving toward, but have not quite returned to, their prerecession patterns. (See figure 6.)

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In December 2016, the share of those who remained unemployed over the month was 49.2 percent, down 2.4 percentage points from December 2015. The likelihood of the unemployed remaining unemployed from one month to the next was the lowest since May 2007, when the rate was 48.2 percent.

Employment

Employment (as measured by the CPS, or household survey) grew at about the same pace in 2016 as it did in 2015. The number of employed people grew by 2.5 million in 2016, reaching 152 million in the fourth quarter. In contrast to 2015, when employment growth was more concentrated among adult women, 2016 saw larger employment employment gains for adult men. Over the year, the number of employed adult men rose by 1.3 million, to 78.3 million, and the number of employed adult women rose by 929,000, to 68.7 million. Employment among teenagers rose by 194,000 in 2016. (See table 1.)

Employment grew among all the major race and ethnicity groups over the year. The number of employed Hispanics rose by 861,000, to reach 25.4 million in the fourth quarter of 2016. Employment among Blacks rose by 551,000 over the year, to 18.2 million. Blacks made up 12.0 percent of total employment in 2016, but accounted for about 22 percent of the overall over-the-year increase in employment. Since 2012, Blacks have accounted for about one-fourth of total employment growth, while making up about one-tenth of total employment. Employment of Asians rose by 662,000, to 9.4 million, accounting for 27.0 percent of the overall over-the-year increase in employment, while only making up 6.2 percent of total employment in 2016. The number of employed Whites rose by 1.1 million over the year, to reach 119.3 million in the fourth quarter of 2016.

The employment–population ratio for all people age 16 and older held fairly steady in 2016, at 59.7 percent, after rising between the fourth quarter of 2015 and the first quarter of 2016. (See figure 7.) The employment–population ratio is the proportion of the civilian noninstitutional population that is employed. The ratio for adult men (68.4 percent) edged up over the year, whereas the ratio for adult women (55.7 percent) was little changed from a year earlier. Although the gap between the ratios for men and women has narrowed over the past several decades, the employment–population ratio for adult men was about 13 percentage points higher than the ratio for adult women in 2016. The ratio among teenagers edged up by 1.0 percentage point, to 29.8 percent in the fourth quarter. (See table 1.)

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The employment–population ratio varied across race and ethnicity groups. In 2016, the ratio for Blacks rose by 0.8 percentage point, to 56.8 percent, marking 3 straight years of growth. The employment–population ratios for Hispanics and Asians edged up over the year, to 61.9 percent and 61.2 percent, respectively. The ratio for Whites, at 60.0 percent, was little changed.

The number of workers holding more than one job edged up by 227,000 in 2016, to 7.7 million. Multiple jobholders accounted for 5.1 percent of the employed—little changed over the year. The percentage of multiple jobholders in the labor force has ranged between 4.7 percent and 5.1 percent over the past 5 years. Before the recession, the rate was slightly higher at 5.3 percent.

The total number of self-employed workers increased by 406,000 in 2016.⁸ In the fourth quarter, 15.4 million workers (not seasonally adjusted) were self-employed. The self-employment rate―the proportion of total employment made up of the self-employed―edged up from the previous year, to 10.1 percent in the fourth quarter. Of all self-employed people, 9.6 million, or about two-thirds, owned unincorporated businesses, while the remaining 5.8 million owned incorporated businesses.

The number of people employed part time for economic reasons declined to 5.7 million in 2016. Also referred to as involuntary part-time employment, this measure of underemployment ended the fourth quarter 266,000 lower than its year-earlier level but still remained high by historical standards.⁹ Slack work or unfavorable work conditions, as opposed to an inability to find full-time work, typically has been the primary reason for working part time involuntarily. Slack work accounted for about three-fifths of people employed part time for economic reasons in 2016. However, the over-the-year decline in the number of involuntary part-time workers was largely driven by a decline in the number of people who could not find a full-time job. (See figure 8.)

In 2016, employment rose in two out of five major occupation groups. Employment in service occupations increased by 963,000, to 26.8 million in the fourth quarter of 2016, after seeing little change in the prior year. Management, professional, and related occupations grew by 1.1 million over the year, to 59.8 million, with almost all of the gain occurring among adult men. Employment in these two broad groups accounted for nearly all of the job growth in 2016. (See table 5.)

Labor force participation

The civilian labor force increased by 2.1 million, to 159.6 million in the fourth quarter of 2016, whereas the labor force participation rate, at 62.7 percent, was little changed. The labor force participation rate―the proportion of the civilian noninstitutional population 16 years and older that is working or looking for work―had previously been trending downward. The labor force participation rates for all of the major race and ethnicity groups also showed little change in 2016. (See table 1 and figure 7.)

People not in the labor force

People who are not in the labor force are neither employed nor unemployed. In the fourth quarter of 2016, 95.1 million people were not in the labor force (not seasonally adjusted), an increase of 692,000 from the previous year. This represents the smallest over-the-year increase since 2006. All of the net increase for people not in the labor force occurred among those who did not want a job.¹⁰ The number of people outside the labor force who indicated that they wanted a job was little changed over the year, at 5.5 million in the fourth quarter of 2016.¹¹ (See table 6.) Of those not in the labor force, about 40 percent were 65 years and older.

Among those not in the labor force who currently wanted a job, the number who were marginally attached to the labor force, 1.8 million in the fourth quarter of 2016, was essentially the same as that a year earlier. These individuals had searched for work sometime in the previous year and were available for work had a job been offered to them. These individuals were not counted as unemployed because they had not actively searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were individuals currently not looking for work because (1) they felt that no jobs were available for them, (2) they could not find work, (3) they lacked schooling or training, (4) they were too old or too young, or (5) they faced other types of discrimination. The subset of the marginally attached who are not looking for work because of any of these five job-market reasons is defined as “discouraged workers.” In 2016, the number of discouraged workers declined by 139,000 and totaled 502,000 in the fourth quarter.

The remaining 1.3 million people marginally attached to the labor force in the fourth quarter of 2016 had not searched for work in the 4 weeks preceding the survey because of school attendance, family responsibilities, health-related issues, transportation problems, and other reasons not identified separately in the CPS. The number of these individuals was little changed over the year.

Alternative measures of labor underutilization

BLS publishes a range of indicators that point to the extent to which labor resources are being utilized. Known as U–1, U–2, and U–4 through U–6 (U–3 is the official unemployment rate), these alternative measures of labor underutilization provide insight into a broad range of problems encountered by workers in today’s labor market.¹² Similar to the official unemployment rate, the alternative measures are presented as a percentage of the labor force (adjusted as necessary). U–1 shows the number of individuals unemployed 15 weeks or longer as a percentage of the labor force, while U–2 presents job losers and people who completed temporary jobs as a percentage of the labor force. U–4 through U–6 are broader than U–1, U–2, and the official unemployment measure: in addition to the total unemployed, U–4 adds discouraged workers; U–5 adds all persons marginally attached to the labor force (including discouraged workers); and U–6 adds all people marginally attached to the labor force, plus people employed part time for economic reasons.

All five alternative measures declined over the year. By the end of 2016, U–1 and U–2 each had declined by 0.2 percentage point, to 1.9 percent and 2.3 percent, respectively. Among the remaining three alternative measures, U–4 declined to 5.0 percent, U–5 dropped to 5.8 percent, and U–6 fell to 9.3 percent. None of the measures, including U–3 (the official unemployment rate), returned to their prerecession low points, but all have shown a similar downward trend. (See figure 9.)

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Earnings

Median weekly earnings of full-time wage and salary workers rose by 2.8 percent in 2016, to $832, outpacing the over-the-year change in the Consumer Price Index for All Urban Consumers (CPI-U), which was 1.3 percent.¹³ (See table 7; the data in this section are annual averages.) The earnings comparisons in this section are on a broad level and do not control for many factors that can be significant in explaining differences in earnings, such as job skills and responsibilities, work experience, and specialization.

In 2016, median weekly earnings for men increased by 2.2 percent, to $915, while women’s earnings increased by 3.2 percent, to $749. Adjusted for inflation, men’s earnings rose by 1.1 percent and women's earnings increased by 1.6 percent. Women’s earnings as a proportion of men’s earnings increased by 0.8 percentage point, to 81.9 percent in 2016, partially offsetting a 1.4-percentage-point decline in 2015. This proportion has been fluctuating in the 80-percent to 83-percent range since 2004. (See table 7 and figure 10.)

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Among full-time wage and salary workers in the major race and ethnicity groups, the median usual weekly earnings of Asians ($1,021) and Whites ($862) continued to be higher than those of Blacks ($678) and Hispanics ($624). While the increases in earnings for all these groups outpaced inflation, Blacks saw the largest over-the-year increase in percentage terms—5.8 percent—after essentially no earnings growth in 2015. Earnings for Whites, Hispanics, and Asians rose at similar rates in 2016—by 3.2 percent, 3.3 percent, and 2.8 percent, respectively.

In 2016, among full-time workers age 25 and older, median weekly earnings growth in percentage terms was relatively consistent across levels of educational attainment. Earnings for workers with less than a high school diploma rose 2.2 percent over the year (to $504). Earnings of workers whose highest level of education was a high school diploma rose by 2.1 percent (to $692), while earnings for workers with some college or an associate’s degree increased by 2.2 percent (to $779). In 2016, median weekly earnings for workers with a bachelor’s degree or higher ($1,259) were up 2.4 percent from a year earlier.

Veterans

In the fourth quarter of 2016, the unemployment rate for veterans―at 4.4 percent (not seasonally adjusted)―was little changed over the year, while the rate for nonveterans declined to 4.4 percent. (See table 8.) In the CPS, veterans are defined as men and women 18 years and older who have previously served on active duty in the U.S. Armed Forces and who were civilians at the time the survey was conducted.¹⁴ Veterans are categorized as having served in one of the following periods: Gulf War era II (September 2001 to the present); Gulf War era I (August 1990 to August 2001); World War II (December 1941 to December 1946), the Korean War (July 1950 to January 1955), and the Vietnam era (August 1964 to April 1975); and other service periods (all other periods).

Of the 20.8 million veterans in the civilian noninstitutional population in the fourth quarter of 2016, those who served during World War II, the Korean War, and the Vietnam era accounted for the largest share (8.3 million). Another 4.0 million veterans served during Gulf War era II, 3.3 million served during Gulf War era I, and 5.1 million served outside of these designated periods.

Over the year, the unemployment rate for male veterans was little changed, at 4.2 percent in the fourth quarter of 2016. The rate for female veterans was also little changed, at 5.3 percent.

Overall, 49.4 percent of male veterans were in the labor force in the fourth quarter of 2016, compared with 74.7 percent of their male nonveteran counterparts. This disparity is due in large part to the age distribution of male veterans relative to that of male nonveterans: the percentage of male veterans in older age brackets is greater, and older individuals tend to have lower labor force participation rates. In the fourth quarter, the participation rate for veterans of Gulf War era II―who tend to be younger than other veterans―was 84.4 percent for men and 75.0 percent for women.

Foreign-born workers

In the fourth quarter of 2016, the unemployment rate for the foreign born was 4.3 percent (not seasonally adjusted), little changed from a year earlier, while the rate for the native born declined by 0.3 percentage point over the year, to 4.6 percent. (See table 9.) Foreign-born workers are those who reside in the United States but were born outside the country or one of its outlying areas (such as Puerto Rico or Guam) to parents neither of whom was a U.S. citizen. Included among the foreign born are legally admitted immigrants, refugees, temporary residents (such as students or temporary workers), and undocumented immigrants.

In the fourth quarter of 2016, the foreign born accounted for 17.0 percent of the U.S. civilian labor force. The labor force participation rate for the foreign born edged down to 65.0 percent, while the rate for the native born ticked up to 62.1 percent. The labor force participation rate for native-born men increased by 0.4 percentage point, to 67.2 percent in the fourth quarter of 2016, but continued to be lower than the rate for foreign-born men, which declined 0.9 percentage point, to 77.3 percent. The participation rate of native-born women (57.4 percent) continued to exceed that of foreign-born women (53.5 percent); both rates changed little over the year.

People with a disability

In 2016, there was a slight improvement in the employment situation of people with a disability. In the fourth quarter, their labor force participation rate was 20.0 percent and their employment–population ratio was 18.1 percent (not seasonally adjusted); while still relatively low compared with data for people with no disability, both measures increased over the year. (See table 10.) Among people with no disability, the labor force participation rate was 68.4 percent and the employment–population ratio was 65.4 percent. In the fourth quarter of 2016, the unemployment rate for people with a disability was 9.6 percent―a 1.4-percentage-point decline from a year earlier―but continued to be more than twice as high as the rate for people with no disability (4.3 percent).

The relatively low labor force participation rate among people with a disability is driven, in part, by a high concentration of people 65 years and older in the group. Independent of disability status, people 65 years and older tend to participate in the labor force at lower rates. However, even among those ages 16 to 64 years, people with a disability had much lower labor force participation rates than those with no disability. Over the year, the labor force participation rate for men ages 16 to 64 years with a disability increased by 2.3 percentage points, to 34.2 percent in the fourth quarter of 2016, while the rate for women ages 16 to 64 years (28.6 percent) was little changed. Among those in the 16-to-64 age group with no disability, the labor force participation rates for men (82.2 percent) and women (70.7 percent) edged up over the year. Among those 65 years and older, the rates for people with a disability (7.6 percent) and without a disability (24.0 percent) were little changed in 2016.

Summary

CPS data indicate continued improvement in the U.S. labor market in 2016. Both the number of unemployed and the unemployment rate continued to decline, with much of the improvement occurring in the fourth quarter. The proportion of people unemployed for long periods of time continued to decline but remained high by historical standards. Employment, as measured by the CPS, expanded over the year by 2.5 million, about the same as in 2015. The employment–population ratio for all people 16 years and older increased between the fourth quarter of 2015 and the first quarter of 2016, but then held fairly steady through 2016. The labor force participation rate was little changed over the year. The rate of labor market “churn”―the proportion of people changing their labor force status―hit its lowest point since the series began in 1990.

Among the major demographic groups, Blacks, in line with a recent trend, continued their noteworthy employment growth, which was also reflected in an increase in the group’s employment–population ratio. Asian employment also rose in 2016, accounting for about one-fourth of total employment growth. Finally, the employment situation of people with a disability saw a slight improvement.