US labour market’s resilience masks deeper employment struggles, says Basu

Kaushik Basu warns that low unemployment figures may hide regional, age or worker-specific strains amidst mixed US labour market signals and India’s ongoing growth challenges.

By the time Kaushik Basu’s column appeared on Sunday, 6 September, the labour-market snapshot it relied on had already been overtaken. The Bureau of Labor Statistics said on Friday, 4 September that US employers added 162,000 jobs in August and revised July’s reported loss of 23,000 jobs to a gain of 21,000. The headline unemployment rate stayed at 4.1%. Even so, the new release also showed labour-force participation at 61.6%, down 0.5 percentage points since January, suggesting that a better payroll number has not fully dispelled concerns about a thinner jobs market. (bls.gov)

What made the July figures so unsettling was not simply the payroll drop but the way the jobless rate moved in the opposite direction. A St Louis Fed analysis said the fall in unemployment was mechanical rather than reassuring: participation in the labour force dropped faster than employment in the household survey, so the rate declined because some people stopped looking for work. Its flow breakdown for July showed a -1.01 percentage-point effect from unemployed people leaving the labour force, offset against +0.74 points from job loss, -0.99 from job-finding and +1.15 from new entrants seeking work. In August, the BLS still counted 1.7 million people as marginally attached to the labour force, including 441,000 discouraged workers. (stlouisfed.org)

The original July shock was real enough. Axios reported that economists had expected an 87,000 increase in payrolls on 7 August, not a decline, and noted that it was the first negative month since February. Indeed Hiring Lab said revisions then cut a combined 103,000 jobs from May and June, with government down 53,000 and leisure and hospitality down 40,000 in July. Both Axios and Indeed pointed to local education as a likely source of seasonal distortion rather than a clean signal of collapsing demand, and the August BLS report broadly backed that up by showing local government education adding 42,000 jobs, largely offsetting the previous month’s fall. (axios.com)

That still leaves a labour market that looks more fragile than a single month’s rebound might suggest. The BLS said average hourly earnings in August were up 3.1% from a year earlier, while the latest CPI reading, for July, showed consumer prices up 3.4% year on year. Official payroll growth has also been modest by recent US standards: the August report said average monthly job gains over the previous 12 months were 31,000, while Indeed’s running July calculation put the average at 34,000. Axios said the weak July report led markets to pare back bets on a September rate rise, underscoring how closely investors were reading labour weakness against still-sticky inflation. (bls.gov)

Basu’s larger argument, however, was not really about one payroll print. In a Korea Times column distributed by Project Syndicate, he argued that the US and India are entering an era of “gated recessions”, where national indicators can stay respectable while particular workers, regions or age groups endure something closer to a slump. The broader US gauges lend some support to that warning. In August, the BLS’s wider underemployment measures remained above the headline rate: U-4 stood at 4.4%, U-5 at 5.1% and U-6 at 7.7%. The agency also said 4.4 million people were working part time for economic reasons, meaning they wanted full-time work but could not get it. (koreatimes.co.kr)

India is the clearer test of Basu’s thesis that growth can coexist with strain. In April, the World Bank said India was still among the fastest-growing major economies and projected growth of 6.6% in FY27 despite higher energy prices linked to the Middle East conflict and wider supply-chain disruption. Paul Procee, the bank’s acting country director for India, said: “Boosting private sector-led growth will be critical to strengthening economic resilience and supporting more young people to enter the workforce.” That is close to Basu’s point: healthy top-line growth does not necessarily mean the jobs problem has been solved. (worldbank.org)

But Basu’s India section also contains a point that does not match the underlying World Bank series cited through the St Louis Fed’s FRED database. He wrote that the World Bank put India’s youth unemployment rate at 17.7% in 2025 after a 2.1 percentage-point rise. The annual World Bank series on FRED shows 16.022% for 2025, up only slightly from 15.746% in 2024 and below the 17.732% recorded in 2022. That does not disprove the broader argument about weak prospects for younger workers, but it does mean the specific 2025 figure in the column is not supported by the public dataset most directly linked to the World Bank. (fred.stlouisfed.org)

Taken together, the newer evidence weakens the case that the US is sliding neatly into an economy-wide recession. July’s apparent payroll contraction has been revised away, and August brought a stronger headline gain. What survives the revision, though, is Basu’s more uncomfortable warning: a low unemployment rate can coexist with people dropping out of the search for work, real pay struggling to outrun prices and younger or lower-paid workers feeling a squeeze that national averages only partly capture. Whether that becomes a broader downturn will depend less on one month’s headline number than on whether participation, hiring breadth and opportunities for new entrants recover from here. (bls.gov)