Oregon Office of Economic Analysis

Just to tie up a few loose ends here, and as the conversation continues to evolve both in Oregon and at the national level, the following takes a look at employment and hours worked. After the recent post on construction employment and housing starts, our good friends over at the Employment Department researched a few different items on the subject. Nick Beleiciks, state employment economist, posted on their blog about how even though construction jobs are only coming back slowly at this point, the demand for construction workers is on the rise. This bodes well for future employment in the industry, particularly as new home construction continues to rebound. Another item Employment researched was the actual number of hours worked by construction workers, based on the QCEW data. Barbara Pensiton Peniston (sorry Barabara) pulled together this data and shared it with out office, so many thanks to her and Employment.

Just to back up a minute, in the typical industry during a recession the number of hours worked is generally cut to a larger degree than the number of employees. Firms do not want to lay off all employees as finding and hiring good employees can be cumbersome and takes time. So firms generally will lay off some employees but then also cut down the number of hours worked for remaining employees, as demand for the firm’s product or service remains weak. In the initial phases of recovery, as demand returns, firms will work their existing employees more. Once the existing employees are back to normal work hours (or even a bit more), then the firm will hire additional employees.

This is the general story told and can be seen in, say, the Oregon manufacturing sector as shown in the graph below. The blue line represents the number of manufacturing employees in the monthly payroll survey (growth calculated on a 6 month basis). The red line takes the hours worked data for manufacturing employees and converts to a true Full Time Equivalent employment count. That is, if every single worker worked 40 hours per week, how many jobs would there be. During the recession the red line plunges deeper than the blue (hours worked being cut more than the number of employees). On the upswing, the red line bounces back first as the number of hours worked increases before additional workers are hired. It takes a good nine months of growth in hours worked before employment turns positive (based on these 6 month percent changes). Note for the data folks, the hours worked series used for Manufacturing is the CES series.

What makes the construction sector interesting or unique is that it did not follow this same pattern. Using the QCEW data provided by Employment, the graph on the left uses the same calculations to generate an FTE series. Both the number of workers and the FTE count followed the same pattern over the business cycle. It is not until late 2011 and into the first half of 2012 that the hours worked per construction worker really took off, which is confirmed by the graph on the right. As of mid-2012, the hours worked per construction employee was back to approximately the same level reached during the housing boom. This certainly bodes well for future construction employment growth. These strong gains in early 2012 are likely due to a number of factors. Besides the initial phases of a housing rebound, the Intel expansion was in full-swing which as discussed previously, is a major, likely factor in our construction bump a year ago. If these gains in hours worked continue through today, construction firms will need to hire more workers moving forward as residential demand is gaining momentum.

Finally, at the national level, Goldman Sachs economists reported (HT: Calculated Risk) that hours worked now exceed pre-crisis levels and expect jobs to increase at a strong rate moving forward. Furthermore, a recent survey of some 670 firms by the Federal Reserve Bank of Atlanta find that the majority of firms are working their employees (hours) at about the same rate as during “normal times”, however the effort per hour (i.e. productivity) is at or above “normal times.” The results of this survey are certainly encouraging for job growth moving forward. If hours worked are at or near regular levels (define that as you may) and the productivity of workers is high, continued economic growth, even as slow as we’ve seen, will result in more employment given the slack in the labor market for current employees is low to nonexistent.