With the government’s latest monthly employment report, the American job market has entered a bewildering good news/bad news phase. The good news is that May’s increase of 217,000 payroll jobs finally puts total employment above its pre-recession peak. There are 8.8 million more jobs than at the low point. Unemployment has dropped from 10 percent to 6.3 percent. Chief White House economist Jason Furman points outthat monthly job gains have averaged nearly 200,000 in the past year and are trending up.
And the bad news? There’s plenty of that too. Economist Gary Burtless of the Brookings Institution notes that getting to the pre-recession employment level took six years and four months, far longer than the previous post-World War II record of four years after the 2001 recession. Not only has job creation been slow, but the number of people wanting more work remains discouragingly high. To the 9.8 million officially unemployed must be added another 7 million; they say they would like a job but — because they are not looking — are not counted in the labor force. Finally, there are 7.3 million part-time workers who would like longer hours.

Because the evidence is mixed, it’s hard to describe the job situation in terms that will strike most people as realistic. Clearly, the labor market has improved. At the depths of the recession, there were nearly seven unemployed workers for every estimated job opening, according to the Bureau of Labor Statistics. Now, the ratio is about 2.2. (Note: In 2007, this ratio fell to 1.4.) The latest number of job openings is 4.5 million for April, 108 percent higher than the low point in July 2009.
But the improvement has not yet been powerful enough to produce a parallel increase in wages, as employers bid for scarce workers. Average weekly earnings are running about 2 percent above a year ago, roughly compensating for inflation over the same period. Moreover, the share of the jobless who are unemployed for six months or more remains at historically high levels, 34.6 percent in May. Until the Great Recession, the post-World War II peak for long-term unemployment was 26 percent in 1983; in 2010, it reached a high of 45.3 percent.
There has also been a massive exodus from the labor force. Since late 2007, the number of people 16 and over “not in the labor force” has increased by almost 13 million. Studies suggest that at least half of the loss reflects natural causes: older workers retiring; spouses — men and women — staying at home with children. Adding the remaining labor-force dropouts to the officially unemployed would boost the jobless rate to 9.7 percent, estimates the Economic Policy Institute, a left-leaning research and advocacy group.
So the job market straddles good news and bad. The open question is whether the economy is approaching “full employment” — often estimated between 5 percent and 6 percent unemployed — or whether stronger job creation will pull many recent dropouts back into the labor market. If full employment approaches, that could put upward pressure on wages and inflation. But if dropouts re-enter the labor market, the numbers of both the employed and the unemployed might rise.
There’s no consensus. A recent paper by Princeton University economists Alan Krueger, Judd Cramer and David Cho found that the long-term unemployed are on the fringes of the labor market and, even in good times, have poor re-employment prospects. They don’t much influence wages and prices. The same logic would seem to apply to labor-market dropouts. We may be closer to “full employment” than is commonly supposed. On the other hand, the Great Recession and the weak recovery aren’t typical of economic cycles since World War II. Past patterns may not hold.