September 27, 2006

Latino Labor Report 2006: Strong Gains in Employment

III. Changes in Employment, 2000-06

Employment Rate: Percent of the population 16 and older that is employed.

Labor Force Participation Rate: Percent of the population 16 and older that is employed or actively looking for work.

Unemployment Rate: Percent of the labor force that is without work and is actively looking for work.

The year 2000 marked a high point for the U.S. labor market. Driven by a lengthy economic expansion in the 1990s, unemployment rates in 2000 were at their lowest levels 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, peaked after rising for three decades. Greater proportions of Latinos and non-Latinos were active in the labor market, either employed or seeking work, than ever before.

The recession in 2001 and the economic slowdown that persisted into 2003 altered the labor market. The unemployment rate increased, and the employment rate and the labor force participation rate fell steadily. By the end of 2003, the labor-market effects of the recession were beginning to lift, but the recovery would prove to be slow. Most labor market indicators in 2006 fall short of the benchmarks reached after the economic boom in the 1990s.

Unemployment Rate for Hispanics and Non-Hispanics: 2000-06

Following the recession in 2001, the unemployment rate for Hispanics and non- Hispanics peaked in mid-2003. Since then, the unemployment rate has fallen steadily for both groups, but the recovery for Hispanics has proceeded at a faster pace. As a result, the gap between the seasonally-adjusted 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.

The seasonally adjusted unemployment rate for Hispanics in July 2006 was 5.3%, well below the most recent peak of 8.4% in June 2003 (Figure 1). Moreover, the unemployment rate for Hispanics was less than 6% from January through July 2006. The last time the Latino unemployment rate was less than 6% for seven months in a row was in 2000.

For non-Hispanics, the seasonally adjusted unemployment rate in July 2006 was 4.7%. That is more than one percentage point less than the most recent peak of 6% in June 2003. However, the non-Hispanic unemployment rate in 2000 was consistently less than 4%, reaching its lowest level (3.6%) in April 2000. As a result, the unemployment rate for non-Hispanic workers has not yet recovered to its pre-recession levels.

Given the trend, it is possible that the Latino unemployment rate could soon converge with the non-Latino rate. That gap in the unemployment rate has historically been about two percentage points or more in favor of non-Hispanics (Figure A1 in Appendix A). However, recent declines in the unemployment rate have occurred at a faster pace for Hispanics than for non-Hispanics (Figure 1) As a result, the seasonally-adjusted unemployment rate for Hispanics in July 2006 was only 0.6 percentage points higher than the non-Hispanic rate (the gap was also 0.6 percentage points in the second quarter of 2006, as shown in Figure A1).

Employment Rate for Hispanics and Non-Hispanics: 2000-06

The employment rate measures the percent of the population 16 and older that is employed. As an indicator of labor market conditions, it is considered a valuable alternative to the unemployment rate. That is because the unemployment rate can often move in unexpected directions. For example, the unemployment rate can increase during economic expansions as more workers are drawn into the labor market to seek work. The employment rate is less likely to show counterintuitive behavior.

The seasonally adjusted employment rate for Hispanics in July 2006 was 65% (Figure 2). Three years earlier, in July 2003, the employment rate for Hispanics had reached a low of 62.3%. While the recovery in the employment rate is proceeding steadily, it has not yet reached the pre-recession level of 66%.

Among non-Hispanics, the seasonally adjusted employment rate in July 2006 was 62.8%. That, too, represented the result of a consistent, albeit slow, recovery from the most recent low of 61.9% in September 2003. The employment rate for non- Hispanics in July 2006 remained well below its high point of 64.6% in April 2000.

Like the unemployment rate, the recovery in the employment rate has been faster for Hispanics. In July 2006, the gap in the employment rates was more than two percentage points in favor of Latinos—the highest it has been in the past three decades (Figure A2 in Appendix A).

Labor Force Participation for Hispanics and Non-Hispanics: 2000-06

The labor force participation rate, which measures the percent of the working age population (16 and older) that is employed or actively seeking work, is the one indicator that continues to show signs of a sluggish recovery. Even as employment itself has increased, the participation rate has not yet begun to climb for either Hispanics or non-Hispanics. That indicates a lingering surplus in the labor market as some workers may be waiting to actively seek jobs.

For Hispanics, the seasonally adjusted labor force participation rate in July 2006 was 68.6%, or one percentage point higher than in February 2004 (Figure 3). However, the recovery in the labor force participation rate has occurred in fits and starts, with temporary peaks followed by declines. Hispanics remained below the 70% rate reached in 2000.

The seasonally adjusted labor force participation rate for non-Hispanics was 65.8% in July 2006, slightly higher than the low point of 65.5% in April 2004. The labor force participation rate for non-Hispanics appeared to show no signs of recovery since 2004 and remained more than one percentage point less than it was at the beginning of 2000 (67%).