September 27, 2006

Latino Labor Report 2006: Strong Gains in Employment

II. Introduction

At the end of 2000, the labor market reflected the economic growth that prevailed for most of the 1990s. Unemployment rates were at their lowest point in 30 years—below 6% for Hispanics and less than 4% for non-Hispanics. The percent of the population 16 and older that was employed, or the employment rate, was at its peak. Greater proportions of Latinos and non-Latinos were active in the labor market, either employed or seeking work, than ever before.

The recession that struck in the spring of 2001, as well as the resulting economic slowdown, reversed many of the gains of the 1990s. The unemployment rate increased, and the employment rate and the labor force participation rate both fell steadily.

By the middle of 2003, employment prospects began to improve. For Hispanics, who have been the principal source of new workers for the U.S. economy this decade, the recovery would prove to be generally steady. While the labor market for Latinos improved faster over the next two years than it did for most others, the gains still fell short of the benchmarks reached after the economic boom in the 1990s.

Now, after three consecutive years of improvement, the labor market for Hispanics has equaled or in some instances surpassed the pre-recession indicators. Labor market indicators for other groups of workers—whites, blacks and Asians—also showed progress in 2005-06, but at a slower pace. While the labor market for Hispanics is showing impressive gains, the number of Latinos who are employed or actively seeking work is still below what it was in 2000, and wages for Latinos remain low compared to other workers.

For Latinos, the engine driving the growth remains immigration. First-generation Hispanics, or immigrants, continue to dominate the Latino labor market. That demographic component is critical to understanding current employment trends. Latinos, while only 14% of the total workforce, are the only group in the current U.S. labor market that continues to grow in a substantial way. The working-age population remains predominantly non-Hispanic white, but among new workers entering the labor force Latinos are a significant component. Between the second quarter of 2005 and the second quarter of 2006, for example, the overall labor force grew by 2.1 million. Of those, 867,000 workers, or about 40%, were Latino.

Labor market outcomes for Latino workers paralleled the growth in their numbers. The seasonally-adjusted unemployment rate for Hispanics fell from 8.4% in June 2003 to 5.3% in July 2006. The gap between the unemployment rate for Hispanics and non-Hispanics, historically about two percentage points, is now the lowest since 1973, when data on Latinos first became available.

There are other key indicators that show how the labor market for Latinos has improved significantly in 2005-06. For example, the proportion of the Hispanic population that is employed—or the employment rate for those 16 and older— increased steadily from the second quarter of 2005 to the second quarter of 2006. The proportion of Latinos 16 and older choosing to participate in the labor force also rose. However, both indicators remain below the peaks attained in 2000.

The construction industry has proven a fertile ground for the employment of Hispanics workers. Construction has been responsible for more than one-third of the gain in Hispanic employment since 2003 and has been an especially important source of jobs for foreign-born Latinos. However, the construction industry may be entering a period of contraction. If that occurs, it could potentially have harmful effects on employment prospects for Hispanic workers in the near future.

Reflecting gains in employment, wages for Latinos went up between 2005 and 2006, a reversal after two years of declines. But behind that gain was a significant loss: Foreign-born Hispanics, the dominant factor in the Latino labor pool, experienced a decline in the median wage. Latinos also continue to have the lowest median wages of any ethnic or racial group.

Labor market outcomes for other groups of workers also improved in 2005-06. Demographic trends for Asian workers, reflected by the growth in their working-age population and labor force, mirror the trends for Hispanics. Employment of Asian workers also grew at a rapid pace, although wages decreased modestly in 2005-06.

The shares of white and black workers in the labor market decreased because of relatively slow growth in their working-age population and labor force. However, the unemployment rate for both groups of workers fell in 2005-06, and black workers, other than Hispanics, were the only group whose wages increased.

This report examines changes in employment and wages principally between the second quarter of 2005 and the second quarter of 2006 by race, ethnic group and nativity. The analysis then looks at employment by industry, with a special focus on the construction sector because of its relevance to Latinos. The last section examines the growth in wages by race, ethnicity and nativity.

The analysis of economic developments in the labor market is accompanied by an analysis of the demographic trends. Two key indicators—the working-age population and the labor force—are used to establish demographic trends for the different race and ethnic groups. As the working-age population and labor force of a group increases, growth in employment is likely. However, growth in numbers alone does not readily translate into improvements in economic outcomes, as reflected in the unemployment rate and wages.

The report does not distinguish Latino workers by immigration status. For more information on unauthorized workers in the U.S. labor market, see Passel (2006). The report also does not examine job displacement or the relationship between immigration and wages of native-born workers.