The Bureau of Labor Statistics’ Employment Situation Release for the month of April shows continued job growth of 211,000 jobs. After a strong showing of over 200,000 jobs added in the months of January and February, job growth slowed some in March (revised downward to 79,000 from 98,000) but appears to be back on track in April. The most recent three months averaged 174,000 jobs added per month, compared to the prior three month average of 178,300. Job growth was strong across industries: in leisure and hospitality, it grew by 55,000, and in health care and social assistance, 36,800. Employment increased by 6,000 in manufacturing and by 9,000 in mining.
Unemployment has fallen to 4.4 percent, the lowest since May 2007. The number of long-term unemployed (out of work for 27 weeks or more) people held steady, but has decreased by 433,000 over the year. Meanwhile, the labor force participation rate decreased by 0.1 percent from last month to 62.9 percent this month. The employment population ratio stands at 60.2 percent—a 0.5 percent increase from this time last year. Involuntary part-time workers has declined by 698,000 over the past year. Meanwhile, job leavers as a percent of all unemployed increased slightly to 11.1 percent in April from 10.7 percent in March. This suggests an increase in voluntary quits and increased worker confidence that they can find another job after separating from an employer; this rate is around pre-recession levels.
Hourly wage growth for all private employees is at 2.5 percent in April year over year, with a three month average of $26.14 an hour compared to $25.46 average seen in the same three month period in 2016—a 2.7 percent increase. While nominal wage growth trends upward, it still falls short of the 3–4 percent needed to raise incomes and real spending power. When looking at inflation-adjusted wages, we see that real wage growth has been muted, particularly for production and nonsupervisory workers, the wages of whom have grown only 0.2 percent over the last year.
This jobs report comes in the wake of some lackluster economic reports.
This jobs report comes in the wake of some lackluster economic reports. GDP growth this quarter was 0.7 percent, below many of the forecasts that anticipated more robust growth from increased consumer confidence and a stock market on the incline. A rift between the consumer confidence surveys and actual consumer purchases is evident; spending on consumer durables like appliances and automobiles are down from last year’s numbers.
The labor market and the economy looks to continue to grow, but at a modest pace. With seventy-nine consecutive months of job growth, it would be premature to start hand-wringing about a looming downturn. For example, the decline in consumer durables spending is expected for goods that do not wear out for several years. Pent up demand from the recession resulted in lots of people buying cars when the economy recovered and incomes rose; now that they have a new vehicle, they don’t need a replacement for a few years. Others are finding that used cars are a more prudent purchase than buying the latest model.
Yet there is slack in the economy. There are still people who want or need a job that do not have one. There are even more folks that want a good job but do not have one. The glut of low-wage jobs and the high level of involuntary part-time workers—despite recent declines, involuntary part time in April was 959,000 higher than pre-recession levels in April 2007—means there is still room to grow. While the Fed’s recent assessment of the economy sees this slow output growth as a transitory phenomenon, concerns over full employment, wage growth and job quality remain, as they have for the duration of the recovery.
Full Employment Revisited: Are We There Yet?
Back in August 2016, I (Michael) explored the definition of full employment in the macroeconomy and its implications for workers and the U.S. economy as a whole. Are we any closer to this key indicator of economic health today? Based on data from the BLS Job Openings and Labor Turnover Survey and BLS unemployment numbers, we still have a ways to go.
A Beveridge curve serves as an indicator of full employment. Where the job openings rate equals the unemployment rate, we can say that we are at or very close to full employment. At full employment, anyone who is willing and able to work should be able to find a job. This leads to increased wages and output, while workers get an increased share of the economic pie.
But, the Beveridge curve is a notoriously untidy graph. In its stead, Figure 1 plots the job openings rate and unemployment rate over time, the same data displayed in a Beveridge curve. When the two lines converge, we can say that the economy is at or near full employment. If 4 percent of the workforce is unemployed and 4 percent of the jobs are open, there is a job for everyone willing and able to work.
Source: BLS Job Openings and Labor Turnover Survey, BLS Current Population Survey
Based on the figure, we are not yet at full employment. A 0.9 percentage point spread persists between the unemployment rate and the job openings rate. Now, some of this spread can be attributed to skills mismatch that can be ameliorated through training and education, but evidence suggests this can be overblown. That the Fed has decided to keep the federal funds rate unchanged after this month’s meeting demonstrates the economy has not yet reached full employment. A dovish approach from the Fed is warranted to keep the economy on the track to full employment.
A dovish approach from the Fed is warranted to keep the economy on the track to full employment.
Since 2000, labor force participation rates for prime age workers (25–54 years of age) also show that we have room for improvement. Rates have not recovered from the pre-recession high of 83.4 percent in January 2007 and the high of 84.4 percent in January 2000. In fact, the participation rate did not start increasing after the recession until mid-2015. The decline cannot be attributed to the retirement of baby boomers and other demographic changes in the US population, since the labor force participation rate displayed here only includes the prime-age population. Encouragingly, the rate has trended upward since the 80.6 percent nadir seen in October 2013, indicating that more prime-age workers are entering the labor market after being on the sidelines following the Great Recession.
Wage Growth in Low-Wage versus High-Wage Industries
We have seen in recent months lackluster wage growth under the ideal 3–4 percent threshold that usually corresponds to increases in real wages and, in time, living standards for workers. Our classification of “RASHH” (Retail, Administrative and Waste Services, Social Assistance, Leisure & Hospitality, and Home Health) industries known for their low pay and employment growth may be influencing overall wage growth.
Figure 3 shows the year over year wage growth by month since 2007 for RASHH industries, total private employment and high wage sectors (construction, manufacturing, financial activities, hospitals). According to the figure, year over year wage growth in the RASHH industries has briefly outpaced total private and high wage sectors in 2016 and early 2017. High wage growth has hovered around 2.5 percent since 2015. What is telling is that only one of the three groupings—the “RASHH” sectors—reached 3 percent nominal year over year wage growth after the bottoming out of wage growth in 2012–2013. All groupings have not seen the wage growth levels recorded at the start of 2007, prior to the recession. Low-wage employment is not dragging down wage growth overall. Rather, the good news is that low-wage jobs are finally catching up with other sectors after dragging down wage growth from the period of 2009–2015. As the labor market continues to tighten and full employment is approached, these low-wage workers have a chance to see their income grow and catch up to some other industries in the private sector.
Beyond Job Creation: Toward an Economy that Values High Wages, Job Quality, and Fulfilling Work
Something lost in the rhetoric around job creation and employment growth is the quality of those jobs. Wage growth has been touch and go throughout the recovery, and jobs that include benefits are harder to come by in an economy where contingent employment is on the rise. Low wage employment in sectors like social assistance, administrative and waste services, and retail has grown more rapidly than the average. And, as mentioned above, involuntary part-time employment this month is still greater than pre-recession levels seen in 2007.
Jobs of the future ought to involve quality work that is challenging and fulfilling for American workers. High-road employment policies have the potential to contribute to improve the lives of workers while increasing productivity in the workplace.
The maker movement in manufacturing counters the narrative of manufacturing occupations consisting of grueling and repetitive work on assembly lines. Creativity and curiosity are encouraged in the maker movement, where small shops of 3D printers and innovative production hubs in cities bring together small groups of “makers.” Technology in these spaces have a liberatory character that make work more non-routine and self-directed.
Combined with standards for wages and benefits, investment in apprenticeships and education, expansion of high-road employment and productive innovation, a high-wage America is within reach.
This ethos of creativity and worker self-direction can translate to other industries. Combined with standards for wages and benefits, investment in apprenticeships and education, expansion of high-road employment and productive innovation, a high-wage America is within reach. The task is to find and promote these scaleable policies, contesting the recent history of stagnating wages and benefits in a way that make sluggish recoveries a thing of the past.