Nov 2, 2018

Labor Market Shrugs Off Hurricanes: Jobs Grow While Wages Rise

The October 2018 Jobs Report

The big news from this month’s jobs report is the surprisingly strong employment growth in the face of two major hurricanes making landfall within a month of each other. The Bureau of Labor Statistics estimates that businesses created 250,000 new jobs in October, substantially above expectations. Wage growth also showed a mild increase, with nonfarm employee hourly wages rising 3.1 percent year-over-year. Average weekly earnings growth was slightly higher (as is typical) at 3.4 percent. 

Other than that, this month’s jobs report is actually pretty boring, even by economics standards. The only other substantial news is that the labor force participation rate increased 0.2 percentage points to 62.9 percent (but this might simply be evidence of normal fluctuations since this is a return to the labor force participation rate seen in June and July). Most other labor market metrics didn’t move very much, but since the labor market is already doing exceptionally well, this is probably a good thing. Sometimes no news is good news, especially regarding the economy.

Employment

Businesses added 250,000 new jobs in October, substantially exceeding economists’ expectations. Employment growth for August and September were revised, although the combined changes totaled zero (August was revised upward by 16,000 jobs while September was revised downward by 16,000 jobs).

Unemployment

The number of people actively looking for work (those who are ‘officially’ unemployed) rose by 111,000, but an overall addition of 711,000 people to the labor force meant that the headline unemployment rate (U-3) held steady at 3.7 percent.

The number of people who were working part-time for economic reasons (like an inability to find full-time work, seasonal declines in demand, or unfavorable business conditions) fell by 21,000 to 4.62 million, which is only 17.7 percent of part-time workers.

The number of people who wanted a job but weren’t actively seeking employment rose by 72,000 to 5.31 million. This led the comprehensive jobless rate to increase slightly to 6.8 percent

The general duration of unemployment mostly held steady. The average length of unemployment for the people currently unemployed is 22.5 weeks, but a relatively small number of people who have been unemployed for a particularly long time make that number deceptively high. By contrast, the median duration of unemployment is only 9.4 weeks.

Despite the low unemployment rate there still seems to be slack in the labor market, as evidenced by the 4.62 million people who wanted a full-time job but were working part-time because of economic reasons, and the 5.31 million people who say they want work, even though they’re not officially counted as unemployed. Combined with an estimate of 6.08 million “officially” unemployed persons (those who are actively seeking employment and are currently available to take a job), there are 16 million people who would like to participate more fully in the labor market.

Opportunity

The seemingly large number of people wanting to work more shouldn’t be a cause for concern since there’s always a churn of people in-between jobs and others whose changing life circumstances lead them to join or re-join the workforce. But it suggests that we should find new ways to help connect them with opportunity.

I testified before members of the House Small Business Committee regarding one such idea last year. The tax code could be tweaked to allow employers to invest in workers the same way they invest in factory machines or office buildings by treating job training expenses as a business expense. This would allow the cost of training an employee for a new job to be claimed as a business tax deduction.  This change could go a long way to bridging the skills gap that employers regularly complain about. It would also increase the employment options available to people looking for work, both first-time job seekers as well as older workers switching careers.

Increasing access to job training would be especially powerful right now because the strength of the current job market offers hope for those who are dissatisfied with their current employment situation. It’s essentially a “sellers’ market” for people who are willing to pursue new employment opportunities. This is especially true for those professions where there are fewer job applicants for each job opening, like nursing, construction, and trucking. In fact, the October 16th Job Openings and Labor Turnover Survey (JOLTS) data release showed the highest ever total number of available positions at the end of August (7.1 million).

Wages

Annual wage growth rose slightly last month to 3.1 percent, while weekly earnings grew 3.4 percent over the previous year (compared to last month’s 2.8 and 3.1 percent). The lack of strong wage growth, given the low headline unemployment rate, has puzzled many economists. There are various explanations for this, and each might be contributing in its own way:

  • Inflation is not substantially eroding wages, averaging only 2.6 percent annually over the last 30 years. The previous 30 year period, in contrast, experienced higher inflation, leading employers to raise wages or risk losing workers to businesses which had.
  • Energy prices, which previously had been a driving factor of inflation, especially as the economy grew and demand for energy rose, are more subdued since fracking technology vastly increased access to known oil and gas resources in the early 2010s.
  • Periods of higher wage growth were generally concurrent with periods of stronger productivity growth. Contemporary average productivity growth is substantially lower.

Furthermore, just because wages are not substantially growing does not mean that compensation is not increasing. There’s a large body of media reports that suggest employers are offering increased monetary and non-monetary employment benefits and amenities instead. A National Bureau of Economic Research working paper released last month supports this, finding that

“our results suggest that amenities play a critical role in job choices. While we limit our attention to only a subset of workplace amenities, we nevertheless estimate that these characteristics compose an important component of compensation, suggesting a first-order role for non-wage amenities for understanding the level and structure of wages in the U.S. labor market.”

As employees desire a better work-life balance, employers are also reporting that work flexibility and “quality of life” benefits are highly sought after.

  • A national survey of employers and employees conducted by The Harris Poll for CareerBuilder found that companies were offering quality of life accommodations to attract employees, including casual dress codes, flexible work schedule, ability to work remotely, extra paid time off, free lunches, gym memberships, and employee discounts.
  • Dog-friendly workplaces have become more popular and some employers are going so far as to pay for pet insurance, “doggie day-care”, and “pawternity leave” to attract the top talent for their business.
  • A few companies are starting to offer programs to help workers pay off student debt.
  • A number of states—most recently Massachusetts—have mandated that employers offer paid sick leave and paid family medical leave. While these employment benefits are often favored by employees, they do represent a cost for employers, meaning that they would tend to restrain wage growth that might otherwise occur. As these policies are adopted by other companies and legislated by other states, they will likely continue to transfer compensation growth from wages to benefits.

None of these employment benefits would count towards ‘wage growth,’ although they are certainly all part of an employee’s overall compensation. A recent White House report illustrated this same point.

Quick Statistics from the October BLS Jobs Report

Headline Employment Statistics

  • Total nonfarm payroll employment increased by 250,000 jobs.
  • The labor force participation rate rose back to its July level of 62.9 percent.
  • The headline unemployment rate (U-3) held steady at 3.7 percent.

Unemployment Statistics

  • The mid- to long-term unemployment rate (15 weeks or longer; U-1) held steady at 1.4 percent.
  • The discouraged worker unemployment rate (U-4) increased by 0.1 percentage points to 4.0 percent.
  • The comprehensive jobless rate (U-5b) increased by 0.1 percentage points to 6.8 percent.

Deeper Unemployment Statistics

  • Long-term unemployed workers (27 weeks or longer) fell by 11,000 to 1,373,000; the proportion of long-term unemployed workers fell slightly to 22.5 percent of those who are unemployed.
  • The number of people who wanted to work full time, but who could only find part-time work for economic reasons fell by 21,000 to 4.62 million, which was 17.7 percent of all part-time workers.

Wages

  • Average hourly earnings rose by 3.1 percent over the previous 12 months.
  • Average weekly earnings rose by 3.4 percent over the previous 12 months.

Photo credit: Nikola Johnny Mirkovic

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