Manufacturing employment rose 36,000 too, double the expansion in May, despite fears about the effects of steel and aluminum tariffs. Wage growth edged up slightly to 2.7 percent over the last 12 months, meaning overall real wage gains.
Perhaps most importantly, the labor market participation rate crept up 0.2 percentage points to 62.9 percent, showing that more people were entering the labor force to seek work.
With all that good news, why not a tweet from the president? One reason may be because the headline unemployment rate crept up from 3.8 percent to 4 percent. But counterintuitively, this was positive news.
Unemployment measures those looking for work who cannot find it. Today’s increase was overwhelmingly a reflection of that increased labor force participation — with 601,000 extra people working or looking for work. In other words, unemployment rose because, on net, more people were looking for work they couldn’t yet find.
This is important, because the main labor market affliction since the financial crisis has been a big fall in labor market participation — people deciding they just do not want to look for work any more. And this effect has been stubborn.
It’s only one month’s data, but if this improvement reflects a trend in the other direction, then it would be a hugely positive development.
Though the figures continue to dumbfound in their strength, many expect continued gains to become more difficult. But the opportunity is there — openings per person looking for work are extraordinarily high. And for that reason, governments at the federal, state and local levels should be looking to fix their labor market roofs while the sun is shining.
The U.S. economy has shown a remarkable ability to create jobs. The acid test now is whether those who have given up looking for work or have been unemployed for long periods (around 23 percent of those unemployed have been so for six months or more) are able to reintegrate into the jobs available.
A recent Organization of Economic Cooperation and Development (OECD) report highlighted some of the stubborn challenges. According to them, “Job losses have been more persistent in areas hit by structural shocks,” such as the industrial heartlands.
They estimate that the participation rate is just 53 percent in West Virginia, for example. Certain areas also have high disability rolls and opioid addiction. It can be tough to turn this around — re‐skilling is often costly and difficult, and new investment is lacking in the most difficult areas.
The political left’s answer to this challenge is to completely overhaul the labor market through a federal job guarantee. But this would be like cracking a nut with a sledgehammer, potentially crowding out lots of private sector activity and parking people on valueless make‐work schemes.
A better approach would be to remove some of the existing barriers that exist to people moving back into the labor market or migrating to regions where job growth is strongest.
What might this entail? This could include welfare reform to try to reduce the work disincentives associated with coming off disability benefits.
Regulatory reform at the state level could have a big impact too. Zoning and land use planning liberalization would help increase the supply of new homes in prosperous, growing areas, making it cheaper for people to move toward good‐paying jobs.
Childcare deregulation could substantially reduce care costs too and allow those who want to return to work to do so more easily. Removing egregious occupational licensing regimes would provide more opportunities to work in certain professions.
Analysis does still suggest, despite today’s strong manufacturing figures, that tariffs on intermediate goods will have damaging overall impacts on manufacturing employment. These should be abandoned.
In short, the U.S. labor market is very strong right now, and this is a heartening report. With sensible regulatory and welfare reform to enable better job matching and more opportunities, we could see continued increased participation, stronger wage growth and sustained low unemployment.