Looking ahead to 2014

2014 may be the year the job market sees real improvement

The underemployed: More than 17 percent of the U.S. employed are part of the part-time economy.
Christopher Furlong | Getty Images

Recent job gains and record highs in the stock market are signs that the U.S. economy is strengthening, leading many economists to believe job growth will continue into 2014.

"If we could maintain a 3 percent–plus pace next year … I'm thinking so far we have in the second half of this year ... then yes, jobs prospects for everyone should improve," said Joseph A. LaVorgna, managing director and chief U.S. economist at Deutsche Bank Securities.

The job outlook should come as welcome news to millions of unemployed Americans as well as underemployed part-time workers who possess the skills to have higher-quality jobs and want to work full-time.

Yet there's a catch: Adding jobs isn't as big an economic driver as adding "quality" jobs.

With November's jobs report, the economy has added 2.1 million jobs this year. But nearly half have been in relatively low-wage sectors like retail, leisure and hospitality. These part-time, low-wage positions become important when analyzing the "underemployment rate"—a broader measure of joblessness that includes people who work part-time and people whose skills are not being fully utilized.

(Read more: Companies facing uphill battles in 2014)

Fry guy no more
The good news is that many economists believe not only that job growth will increase in 2014 but that there will also be an uptick in better-quality, higher-paying jobs.

"What we do expect is that the recovery will shift gears … and as it does, we will see more of the better-quality jobs," said Sophia Koropeckyj, managing director for Moody's Analytics.

"If we do see stronger manufacturing conditions, if we do see a stronger housing market, exports, that suggests ... we see the types of jobs shifting from these low-paid part-time jobs that characterized the economy for the past couple of years into the better-quality, full-time jobs," Koropeckyj said.

There are millions of desperate workers out there, so even those really low-quality jobs just get snatched up.
Heidi Shierholz
economist, Economic Policy Institute

Federal Reserve Chairman Ben Bernanke said after the recent Fed meeting and taper decision that "meaningful" progress in the jobs market led to the Fed's decision to modestly reduce its stimulus program by $10 billion a month starting in January. "I think we have been aggressive to try and keep the economy growing, and we are seeing progress in the labor market," Bernanke said.

That progress came in the form of an unemployment rate that sank to a five-year low of 7 percent in November, with nonfarm payrolls up by 203,000 jobs. That was about the same as October's unexpectedly strong gain of 200,000 jobs.

(Watch: 2014 Fed predictions)

Doing the underemployed math
But hold the celebratory confetti. The U.S. economy still faces many significant problems. Besides the many part-time workers who cannot find full-time work, many other Americans have stopped searching and dropped out of the labor force.

"There are millions of desperate workers out there, so even those really low-quality jobs just get snatched up," said Heidi Shierholz, economist at the Economic Policy Institute.

The underemployment rate, which economists call the U-6, fell to 13.2 percent from 13.8 percent in November. Economists believe much of that decline was likely due to the return of furloughed federal workers.

But that number tends to be much higher when the government isn't doing the counting.

A Gallup poll indicated that 17.3 percent of the workforce is underemployed—a much higher number than the government's count. November's underemployment rate is up from 16.5 percent in October but remains statistically unchanged from 17.2 percent in November 2012, according to Gallup.

(Read more: Will taper be a blow to the wealthy?)

Then there is the plight of the long-term jobless. Millions of Americans have been out of work for unusually long periods of time. Many others have been forced to settle for low-wage positions, including millions of college graduates who aren't utilizing their degrees.

These factors lead to decreased spending power among average-wage workers who have trouble just making ends meet, and that's a trend that can block broad-based economic growth.

"We need demand for work to be done. What we have out there is an aggregate demand problem," Shierholz said. "People just aren't buying things—not because they're saving money … but they just don't have money to spend, because the labor market is so weak."

Yellen: Still too many unemployed in U.S.

Cash kings
It's a vicious cycle, and many economists don't believe job growth driven by low-paid sectors of the economy will lead to an increase in consumer confidence and spending, which leads to more jobs and lower unemployment.

Koropeckyj said the number of people who could only find part-time work doubled between early 2008 and 2010 and has been gradually increasing. Even the number of people employed part-time involuntarily who've had their hours cut has declined only gradually, to about 5 million people. "That's interesting because it's indicative of still an economy where there is not sufficient aggregate demand to get back to conditions that prevailed prior to the recession," she said.

What will continue to increase, Shierholz said, is corporate profits: "One of the reasons corporate profits are doing so well is because wages are so low."

(Read more: 4 ways to make money off Washington next year)

Companies are sitting on mounds of cash heading into 2014. Companies around the globe have roughly $6.8 trillion of cash and equivalents on their balance sheets currently, according to Thomson Reuters. That's more than double the amount of a decade ago, and more than a trillion of that cash horde is in the U.S.

Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, said unlocking this capital will be crucial for job growth. "Companies are not spending the money at this time. They are holding back.… They're not expanding," he said.

Silverblatt said corporations will need to see an increase in sales to become more liberal with cash on the balance sheet for expansion. It's another catch: Corporations aren't going to start spending and investing more capital unless they see an increase in demand, but the demand won't necessarily increase unless more higher-quality, better-paying jobs are created.

Even so, many economists remain optimistic that underemployment will decrease in the near future. It's just not clear if that future is as near as 2014.

"The quality jobs typically come more in the permanent jobs where companies are going to have to start manufacturing more and making more," Silverblatt said. And even if companies do gain the confidence they need to spend more of their cash, Silverblatt said the better jobs would take at least several quarters to produce.