Beyond the Headline: May’s Jobs Report Shows Employment Headed in the Wrong Direction

Hidden in the Bureau of Labor Statistics’ latest jobs report is an unsettling fact that spoils the administration’s positive spin. Pictured: Acting Labor Secretary Julie Su arrives for a Senate hearing on the May 9, 2024. (Photo: Tom Williams/CQ-Roll Call, Inc/Getty Images)

Pay no attention to the shocking truth behind the curtain. Hidden in the Bureau of Labor Statistics’ latest jobs report is an unsettling fact that spoils the administration’s positive spin.

The report pleasantly surprised economists by reporting an increase of 272,000 payroll jobs, but the May jobs report contained some troubling information. According to the report, the number of people who are employed fell by 408,000.

A single month’s data is not particularly telling, but six months provides a better picture. Over the past six months, payroll jobs increased by a very strong 1.529 million. Yet, total employment—which represents how many people are engaged in work—fell by 783,000. Jobs data comes from a survey of employers who report the total number of positions on their payrolls and employment data comes from a survey of households who report if they are working or not.

Payroll jobs and employment data can diverge over time for a number of reasons. For example, an increase in people working multiple jobs will cause payroll jobs to rise but not employment, and a decline in the number of people who work for themselves (as independent contractors, gig workers or freelancers) will cause payroll jobs to decline without any loss in employment. Neither of these factors explains the big divergence over the past six months, however.

Another potential explanation could come from high levels of illegal immigration. Jobs held by immigrants—whether here legally or illegally—show up in employers’ payrolls (unless employers are paying them illegally under the table). But it’s not clear whether the household survey captures immigrants who enter the U.S. illegally. At a minimum, immigrants who are in the U.S. illegally are almost certainly underrepresented in the household survey simply because of their more transient and less stable nature. Consequently, it could be that the rise in illegal immigration has boosted payroll jobs even as employment among legal U.S. residents is falling.

Since employment and the unemployment rate come from the same household survey, the drop in employment over the past six months contributed to a rise in the unemployment rate, from 3.7% in November to 4.0% in May. But that increase would have been even larger were it not for a 395,000 decline in the labor force as fewer people sought employment.

Based on a comparison of employment-to-population ratios, there are 1 million fewer Americans employed today than just six months ago. Compared to four years ago, just prior to the COVID-19 pandemic, there are 2.9 million fewer people working today.

If these missing workers were still engaged in productive activity—like pursuing additional education or caring for children—that would not be a problem. But total college enrollment is still down 4% from pre-pandemic levels, and parents are among the few groups of workers whose employment has actually increased.

The apparent rise in idle, able-bodied Americans is troubling both for the economy and for individuals. It means less output, lower tax revenues, and higher welfare costs (which then require higher taxes on workers). Meanwhile, idle individuals lose both income and the sense of purpose and shared identity that work provides.

That’s why it’s so regrettable that a slew of recent Biden administration policies could exacerbate already weak employment.

First, a regulation redefining what it means to be a “joint employer” threatens to upend the successful franchising business model that’s helped hundreds of thousands of ordinary Americans become small business owners. Although a federal district judge vacated (in other words, threw out) that regulation, the administration will likely challenge that decision.

Then there’s the administration’s independent contractor regulation that went into effect on March 11 and which greatly limits who can be an independent contractor. With 64 million Americans performing some type of independent work in 2023, that rule could take away income opportunities and entire livelihoods of millions of workers.

Economists estimated that a similar restriction on independent contractors in California contributed to a 10.5% decline in self-employment and a 4.4% drop in total employment.

Considering that over half of people who perform independent work say they are unable to work for a traditional employer because of their own health or their family caregiving responsibilities, this could especially hurt parents, caregivers, and individuals with disabilities. Although it is too soon to tell the impact of the independent contractor rule, self-employment declined by 1.2%, or 114,000, between March and May.

Finally, there’s the administration’s overtime rule that could cause millions of salaried workers to be converted to hourly workers and lose out on workplace flexibility, benefits, and even wages.

Instead of trying to micromanage the economy, employers, and workers, policymakers should encourage stronger employment and rising incomes by expanding alternative types of education and by removing government-imposed barriers to work.