The true state of America’s labor market

OPINION:

Something doesn’t add up. According to official government reports, the economy added 7.8 million new payroll jobs over the past five years but gained only 3.7 million new workers.

Even after factoring in the Bureau of Labor Statistics’ announcement that 28%, or 818,000 of the job gains it reported over the past year, were overstated and not actually created, the questions remain: How can the economy have strong job growth and weak employment gains? And which report is true?

The answer is almost certainly that both reports are at least a bit off. Job gains are not as strong as reported, and more people are probably working than have been counted.

The potential reasons why these reports may be off can provide a better picture of what’s happening in the labor market today.

But first, deciphering the data requires a little technical information. Bear with me, though; it’ll pay off.

The Bureau of Labor Statistics conducts two separate surveys each month. The employer survey counts the number of jobs on company payrolls, and the household survey counts the number of people working or employed.

The number of workers has always exceeded the number of payroll jobs, primarily because not all jobs are payroll jobs. Many work for themselves or as contractors or freelancers in positions that don’t appear on companies’ payrolls.

The big story is that the gap between the number of workers and the number of payroll jobs recently plummeted to an all-time low. So while the number of workers has exceeded payroll jobs by an average of 5.2% over the past two decades, the number of people working today exceeds reported jobs by just 1.6%.

An immediate culprit for the declining gap is overstated payroll job gains. After factoring in the Bureau of Labor Statistics’ downward revision of 818,000 payroll jobs, which won’t appear in the official data until March 2025, the gap rises to 2.1%. That’s still unprecedentedly low.

Other factors are also at play, but their roles are less certain.

One cause of the declining gap between workers and jobs could be inaccurate population estimates. If the population estimates are off, the reported number of workers will also be off. The 2020 census was particularly bad, including a 5% undercount of the Hispanic population, which could suggest that the number of people working is higher than reported.

Moreover, the recent surge in illegal immigration — including an estimated 11 million people entering the United States illegally between fiscal 2021 and fiscal 2024, compared with 3 million over the prior four years — has shifted the demographic makeup of the U.S. It is unclear how much the government’s jobs report and household survey capture this shift.

If those who are living and working illegally in the U.S. show up more on employers’ payrolls than they do on the household survey of workers, this would contribute to the narrowing gap. Considering that employers risk little by reporting undocumented workers in their payroll headcount and that people in the U.S. illegally may be reluctant to fill out a government survey, it is certainly possible that those working illegally in the U.S. show up more in payroll jobs than in the number of workers.

Another potential cause of the declining gap could be a shift in self-employment. While the advent of app-based platforms to sell products and services gave rise to an estimated 64 million Americans — more than 1 in 3 workers — doing independent work last year, a recent Biden-Harris administration “crackdown” on independent contractors could make it increasingly difficult for people to work for themselves.

An analysis of similar restrictions in California found that they led to a 10.5% decline in self-employment in the state and a 4.4% decline in total employment. If that’s also happening nationwide, it’s contributing to the narrowing gap between workers and jobs.

Finally, a recent uptick in the number of people working two or more jobs is likely reducing the gap because one person taking on a second or third job adds to payrolls but doesn’t increase the number of people working.

Whatever the reason, this much is indisputable: Work is fundamental to human flourishing. Regardless of differences in official statistics, policymakers should seek to make it easier and more rewarding for people to work and harder for them to sit on the sidelines.

That should start with expanding alternative education options, such as apprenticeships, not restricting flexible work or entry-level jobs and making welfare work-oriented. To make work pay for more Americans, policymakers should limit how much the government takes in taxes from workers’ paychecks and eliminate unnecessary regulations that restrict how much employers can pay workers.

Perhaps then we won’t need to question the true state of America’s labor market. It will be evident in the output workers produce and the paychecks they take home.

• Rachel Greszler is a senior research fellow in workforce and public finance at the Roe Institute at The Heritage Foundation.