Jobs only seem hot, and that's why wages are sluggish
The hottest months on record have been the backdrop for what, on the surface, has seemed to be an equally red-hot U.S. labor market, with the lowest joblessness in a half century, rising wages, and bettering prospects for the least advantaged people.
Quick take: But, at odds with classic textbook lessons, experts now cite evidence that the economy may actually only be warm, with millions of people still wishing to get hired, to turn part-time or gig work into full-time employment, and to earn more money.
What's happening: In its latest report, the U.S. Bureau of Labor Statistics said the economy produced a great surplus of work above and beyond the number required to absorb new job entrants. Just 80,000-100,000 jobs are needed to soak up fresh graduates and other new entrants to the work force each month, and the economy produced 164,000 in July.
- That left the July jobless rate at 3.7%, the lowest since 1969. Wages rose by 3.2%, double the 1.6% inflation rate.
- Moreover, unemployment for black men remained at a record low of 5.8% and for black teens at 17.7%.
All kosher, right? Not if one is guided by history:
- If you smooth out for monthly gyrations and take a 3-month average, the number of jobs increased by 140,000, well below the 211,000 during the same months in 2018, and the least in two years.
And wages are not rising as they should if you believe in the law of supply and demand, along with historical trends, which say they should be increasing at a fast clip since employers should be robustly competing to grab workers.
- Instead, the year-over-year real average annual wage increase of 1.6% is far below the rates of 4% and more marked month after month just prior to the Great Recession.
- Nominally, writes Dean Baker, senior economist at the Center for Economic and Policy Research, manufacturing wages rose an average of 2.5% over the year. But when you factor in lower weekly hours, the increase was just 1%, below inflation.
What economists now suspect: We are not in a tight jobs market.
- "There are a lot of indicators that we are not really running out of workers," Guy Berger, chief economist at LinkedIn, tells Axios.
- In a tweet thread today, Berger called the jobs report "eh," noting that employment for prime-age workers 25-54 is at a 10-month low (at 79.5% in July versus 79.7% in October 2018, according to the St. Louis Fed.).
- This aligns with remarks July 10 by Fed Chairman Jerome Powell: “We don’t have any basis or any evidence for calling this a hot labor market,” he said. “To call something hot, you need to see some heat."
In a recent piece, the WSJ's David Harrison cites work by David Bell, an economist at the University of Stirling, and Dartmouth's David Blanchflower, who blame the sluggish wages on an outgrowth of people working part-time.
- This critical mass of people who actually want full-time work has created an in-built flaccidity in the job market, and been "the main influence on wages in the years since the Great Recession," Bell and Blanchflower write in a 2018 paper.
Thought bubble from Axios markets reporter Courtenay Brown: "There's sort of this chicken-or-egg dynamic here. Wages aren't growing because workers aren't coming off the sidelines, so there's not enough competition for talent for companies to raise pay. Meanwhile, workers may not be coming off the sidelines because wages aren't spectacular enough to make them jump back in."