For Workers, the New Year Begins with a Bang

The January jobs report released today continues to attest to strong economic growth, as US employers added 225,000 jobs last month. It seems the economy has not been spooked by the shadow of impeachment, which has otherwise consumed Washington, D.C., and national news cycles over the last few months.

The labor market appears to have now fully recovered from the economic downturn of the Great Recession. Total labor force participation increased by 0.2 percentage points in January, but, because of baby boomer retirements, the participation rate for “prime-age” workers (25-54 years old) makes a more relevant comparison. It hit 83.1 percent last month, the highest it’s been since 2008. In addition, the participation rate of prime-age women in the workforce (76.8 percent in December 2019) has nearly recovered to its all-time high of 77.3 percent in 2000.

The lowest-paid workers saw their wages rise on average more than 4.4 percent in 2019. In fact, since late 2014, the lowest-paid 25 percent of workers have seen their hourly wages rise faster than the highest-paid 25 percent. Understanding this puts some critics’ concerns over slow wage growth in perspective.

There are a variety of factors at play behind these wage increases, including city- and state-mandated minimum wage increases. But even low-wage workers in areas that haven’t increased the minimum wage are benefiting from the strong economy. There’s a worthwhile argument that the data shows that states that raised their minimum wage saw even larger growth in average annual wages for low-wage workers than states that did not. But that perspective fails to incorporate three important elements of a more complete analysis.

First, it evaluates wage changes compared with total compensation—and there’s evidence that total compensation can remain flat despite mandated wage increases due to reductions in non-wage compensation. Second, total compensation for low-wage workers can actually decrease, as employers reduce workers’ hours in response to the higher hourly wage. This phenomenon has been documented in Seattle following its minimum wage increase to $15 per hour in 2016. Lastly, the political decision to raise minimum wages is likely endogenous—that is, politicians in states where the economy is doing better than average may be more likely to raise the minimum wage. This means that a simple comparison of wage growth between states that have raised the minimum wage and those that have not may be confusing correlation for causation.

At the end of the day, it’s commonly observed in economic cycles that when unemployment drops and labor markets become tighter, wages and total compensation rise, and the increase tends to be larger for workers at the lower end of the income scale. It turns out that Econ 101 and the Law of Demand isn’t as useless as some commentators might argue.

Quick Statistics from the January 2020 BLS Jobs Report

Headline Employment Statistics

• Total nonfarm payroll employment increased by 225,000 jobs.
• The labor force participation rate rose by 0.2 percentage points to 63.4 percent.
• The headline unemployment rate (U-3) rose by 0.1 percentage points to 3.6 percent.

Other Unemployment Rates

• The mid- to long-term unemployment rate (15 weeks or longer; U-1) held steady at 1.2 percent.
• The discouraged worker unemployment rate (U-4) rose by 0.1 percentage points to 3.8 percent.
• The comprehensive jobless rate (U-5b) rose by 0.1 percentage points to 6.4 percent.

Deeper Unemployment Statistics

• The number of unemployed workers rose by 139,000 to 5.9 million.
• The number of people who say they want a job but were not actively seeking work increased by 72,000 to 4.9 million.
• Short-term unemployed workers (under 15 weeks) increased by 19,000 to 3.8 million, accounting for 65.0 percent of those who are unemployed.
• Long-term unemployed workers (27 weeks or longer) fell by 20,000 to 1.2 million, accounting for 19.9 percent of those who are unemployed.

Full-Time vs. Part-Time Employment Statistics

• The unemployment rate for those specifically seeking full-time work rose by 0.1 percentage points to 3.5 percent.
• The unemployment rate for those specifically seeking part-time work rose by 0.2 percentage points to 4.1 percent.
• The number of people who wanted to work full time, but who could only find part-time work for economic reasons, fell by 20,000 to 4.1 million. The part-time workers who wanted full-time employment constituted 15.8 percent of all part-time workers.

Wages

• Average hourly earnings (for all private, nonfarm employees) rose by 3.1 percent over the previous 12 months.
• Average weekly earnings (for all private, nonfarm employees) rose by 2.5 percent over the previous 12 months.

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