One of the recurring myths following the Great Recession has been that recovery in the labor market has lagged because workers don’t have the right skills. The figure below, which shows the number of unemployed workers and the number of job openings in November by industry, is a useful way to examine this idea. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings and others where there are more job openings than unemployed workers. What we find, however, is that there are more unemployed workers than jobs openings across the board.
Some sectors have been closing the gap faster than others. Health care and social assistance, which has been consistently adding jobs throughout the business cycle, has a ratio quickly approaching 1. Wholesale trade is also moving towards a ratio of 1. And on the other end of the spectrum, there are 6.2 unemployed construction workers for every job opening. Arts, entertainment, and recreation has the second highest ratio, at 3.2-to-1.
Taken as a whole, these numbers demonstrate that the main problem in the labor market is a broad-based lack of demand for workers—not available workers lacking the skills needed for the sectors with job openings.
Unemployed and job openings, by industry (in millions)
|Professional and business services||1.1029||0.8648|
|Health care and social assistance||0.7116||0.7004|
|Accommodation and food services||0.9649||0.5807|
|Finance and insurance||0.2636||0.2311|
|Durable goods manufacturing||0.4713||0.1775|
|Transportation, warehousing, and utilities||0.3663||0.1645|
|Nondurable goods manufacturing||0.3048||0.1088|
|Real estate and rental and leasing||0.1148||0.0566|
|Arts, entertainment, and recreation||0.2175||0.0685|
|Mining and logging||0.0518||0.0293|
Note: Because the data are not seasonally adjusted, these are 12-month averages, December 2013–November 2014.
Source: EPI analysis of data from the Job Openings and Labor Turnover Survey and the Current Population Survey
The hires, quits, and layoffs rate held fairly steady in the November Job Openings and Labor Turnover Survey (JOLTS), released today. Total separations—the combination of quits, layoffs, discharges, and other separations—fell slightly in November.
The figure below shows the hires rate, the quits rate, and the layoffs rate. Layoffs shot up during the recession but recovered quickly and have been at prerecession levels for more than three years. This makes sense, as the economy is in a recovery and businesses are no longer shedding workers at an elevated rate. The fact that this trend continued in November is a good sign. However, not only do layoffs need to come down before we see a full recovery in the labor market, but hiring needs to pick up. While the hires rate has been generally improving, it’s still below its prerecession level.
The voluntary quits rate had been flat since February (1.8 percent), and saw a modest spike up in September to 2.0 percent, before falling to 1.9 percent in October and holding steady in November. A larger number of people voluntarily quitting their jobs indicates a strong labor market, where hiring is prevalent and workers are able to leave jobs that are not right for them and find new ones. There are still 9.1 percent fewer voluntary quits each month than there were in 2007, before the recession began. We should be hoping for a return to pre-recession levels of in voluntary quits, which would mean that fewer workers are locked into jobs they would leave if they could.
Total hires, layoffs, and quits, December 2000–November 2014
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey
The number of job openings hit 5.0 million in November, according to this morning’s Job Openings and Labor Turnover Summary (JOLTS)—a slight increase from 4.8 million in October. Meanwhile, according to the Census’s Current Population Survey, there were 9.0 million job seekers, which means there were 1.8 times as many job seekers as job openings in November—the lowest since January 2008. A rate of 1-to-1 would mean that there were roughly as many job openings as job seekers. In a stronger economy, the ratio would be smaller, but we are definitely moving in the right direction.
This slight decline in the jobs-seekers-to-job-openings ratio is a continuation of its steady decrease, since its high of 6.8-to-1 in July 2009, as you can see in the figure below. The ratio has fallen by 0.8 over the last year.
At the same time, the 9.0 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the 5.8 million potential workers (in November) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will go back to looking for a job when the labor market picks up, so job openings will be needed for them, too.
Furthermore, a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong. There is a wide range of “recruitment intensity” with which a company can deal with a job opening. If a firm is trying hard to fill an opening, it may increase the compensation package and/or scale back the required qualifications. On the other hand, if it is not trying very hard, it might hike up the required qualifications and/or offer a meager compensation package. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical—it tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled when the labor market is weak, as it is today, companies may very well be holding out for an overly-qualified candidate at a cheap price.
The job-seekers ratio, December 2000–November 2014
|Month||Unemployed job seekers per job opening|
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
Double-digit black unemployment rates have been the norm for the past six years. However, following another solid month of job growth in December 2014, the black unemployment rate fell to 10.4 percent—just half a percentage point away from single digits. In a previous post, I highlighted the strong labor market gains made by people of color in 2014, based on every major economic indicator, including the unemployment rate, employment-to-population ratio (EPOP) and labor force participation. From December 2013–December 2014, African Americans had the largest increase in both labor force participation rate and EPOP of any demographic group. Combined with the fact that unemployment rates for whites (4.8 percent) and Hispanics (6.5 percent) have moved steadily closer to pre-recession levels, it’s not unreasonable to assume that, if 2014 labor market trends continue into 2015, black employment could really get a boost.
By projecting the 2014 average monthly change in the size of the black labor force and the number of unemployed black workers through 2015, I calculated a projected monthly black unemployment rate. I also used monthly averages over the past two years, both by level and percent change. Based on these estimates shown in the figure below, the black unemployment rate could finally fall below 10 percent by mid-2015.
2015 projected black unemployment rates based on 2013 and 2014 trends in labor force and unemployed
|Date||2014 avg level change/mo||2013-2014 avg level change/mo||2014 avg percent change/mo||2013-2014 avg percent change/mo|
Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey public data series
Will the Supreme Court Annihilate One of the Most Effective Tools for Battling Racial Segregation in Housing?
The U.S. Supreme Court could be on the verge of issuing a major setback to racial integration efforts. In two weeks, it will hear oral arguments regarding whether the federal government and states should be permitted to pursue policies that perpetuate or exacerbate racial segregation in housing—even where no intent to segregate is proven.
The segregation of low-income minority families into economic and racial ghettos is one cause of the ongoing achievement gap in American education. Students from families with less literacy come to school less prepared to take advantage of good instruction. If they live in more distressed neighborhoods with more crime and violence, they come to school under stress that interferes with learning. When such students are concentrated in classrooms, even the best of teachers must spend more time on remediation and less on grade-level instruction.
The Economic Policy Institute, together with the Haas Institute for a Fair and Inclusive Society at the University of California, have organized a large group of housing scholars—historians and other social scientists—to sign a friend-of-the-court brief urging that housing policies perpetuating segregation should be banned.
A drop in the unemployment rate from 5.8 percent in November to 5.6 percent in December could mean one of two things. It could mean that more people are getting jobs. Or, it could mean that people have given up looking and left the labor force. These days, the truth lies somewhere in between. Looking at December’s jobs report, however, it’s pretty clear that the primary reason the unemployment rate fell to 5.6 percent is a declining labor force.
Over 70 percent of the decline in the number of unemployed people between November and December was due to a drop in the labor force. The labor force participation rate fell from 62.9 percent to 62.7 percent between November and December. And, the employment-to-population ratio (the share of the population working) held constant at 59.2 percent.
Even with the decline in labor force participation, the unemployment rate in December 2014 remains elevated compared to 2007, which had an average rate of 4.6 percent. The table below compares the unemployment rates between today and 2007 across various demographic groups.
You can see that no one demographic group has been spared by the weak economy. Compared to 2007, unemployment is elevated for groups that typically face higher-than-average joblessness, such as people of color, younger workers, and those with only a high school degree. But unemployment is disproportionately higher (i.e. the ratio between the years is larger) for those with a college degree or working in “Management, professional, and related occupations.”
At an Average of 246,000 Jobs a Month in 2014, It Will Be the Summer of 2017 Before We Return to Pre-recession Labor Market Health
Dramatically falling employment in the Great Recession and its aftermath has left us with a jobs shortfall of 5.6 million—that’s the number of jobs needed to keep up with growth in the potential labor force since 2007. Each year, the population keeps growing, and along with it, the number of people who could be working. To get back to the same labor market we had before the recession, we need to not only make up the jobs we lost, but gain enough jobs to account for this growth.
The chart below projects out the potential labor force into the future. In December, the economy added 252,000 jobs; average monthly job growth in 2014 was 246,000 jobs. This is a clear improvement over the last several years, but the reality is that if we add 246,000 jobs a month going forward, it will take until August 2017 to hit the employment level needed to return the economy to the labor market health that prevailed in 2007.
Yes, job growth increased in 2014—in fact, job growth has gotten stronger each consecutive year in the recovery—and I’m optimistic that we will continue to see job growth that strong or stronger in the upcoming months. The high of the last year occurred in November, with today’s revisions bringing the number of jobs added in that month up to 353,000. If we were to create that number of jobs—the highest monthly number of the recovery—every month, we would return to pre-recession labor market health in August 2016. That’s awfully optimistic, and yet, still nearly 9 years since the recession began.
With today’s jobs report, we can now look at the state of the labor market in 2014 as a whole, and examine the trajectory of our economic recovery. The good news is that in 2014 people were increasingly finding jobs. The bad news is that we are still digging our way out of the recession, and wage growth remains stagnant and untouched by recovery.
In December, the economy added 252,000 jobs, while average monthly job growth in 2014 was 246,000 jobs. This is a clear improvement over the last several years. Since the end of the recession, we have seen an increasing number of jobs added each year, albeit a slow increase. In 2010, average monthly job growth was only 88,000. Average monthly job growth rose in each consecutive year, up to 194,000 in 2013 and 246,000 jobs a month in 2014.
If we continue to see the 2014 level of jobs growth for the next few years, we will return to pre-recession labor market health in August 2017. On the one hand, 246,000 jobs a month is a decent rate of growth; on the other hand, September 2017 is almost three years away, and nearly 10 years since the recession began.
Despite the minor surge in job creation over the last year, there is still substantial slack in the labor market, as evidenced by the continued sluggishness in nominal wage growth. Private sector nominal average hourly earnings grew 1.7 percent annually in December, lower than average, but in line with what we’ve seen this year so far. Nominal hourly earnings averaged $24.44 in 2014, up from $23.96 in 2013—the average annual growth rate between 2013 and 2014 was 2.0 percent.
As you can see in the figure below, for the last five years, nominal wages have grown far slower than any reasonable wage target. The fact is that the economy is not growing enough for workers to feel the effects in their paychecks and not enough for the Federal Reserve to slow the economy down out of fear of upcoming inflationary pressure. If the Fed acts too soon, it will slow labor share’s recovery and come at a cost to Americans’ living standards. It is imperative that the Fed keep their foot off the brake for as long as it takes to see modest (if not strong) wage growth for America’s workers.
Nominal wage growth has been far below target in the recovery: Year-over-year change in private-sector nominal average hourly earnings, 2007–2014
|All nonfarm employees||Production/nonsupervisory workers|
* Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.
Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics public data series
Turning to the household survey, where the official unemployment rate is determined, we see a similar story. The unemployment rate in December declined to 5.6 percent, primarily due to a drop in the labor force. All together, the unemployment rate for 2014 averaged 6.2 percent, down significantly from its high of an average of 9.6 percent in 2010. And, just in the last year, the unemployment rate has fallen dramatically, from an average of 7.4 percent in 2013. That said, the official unemployment rate fails to take into account millions of missing workers—workers who have been sidelined by the weak economy and who are expected to return to the labor market when job opportunities significantly improve.
Millions of potential workers sidelined: Missing workers,* January 2006–December 2014
* Potential workers who, due to weak job opportunities, are neither employed nor actively seeking work
Note: Volatility in the number of missing workers in 2006–2008, including cases of negative numbers of missing workers, is simply the result of month-to-month variability in the sample. The Great Recession–induced pool of missing workers began to form and grow starting in late 2008.
Source: EPI analysis of Mitra Toossi, “Labor Force Projections to 2016: More Workers in Their Golden Years,” Bureau of Labor Statistics Monthly Labor Review, November 2007; and Current Population Survey public data series
As we await the last jobs report for 2014, it’s useful to step back and look at the December report in the context of the entire year—and in the context of the recovery as a whole. If December’s numbers come in as expected, we will see a relatively strong labor market in 2014, compared to the economy in the Great Recession and the beginning of the recovery.
Arguably, the real recovery did not even begin until 2014. Job growth was considerably stronger in 2014 than in previous years, and the unemployment rate, along with the long-term unemployment rate, measurably declined. Meanwhile, the employment-to-population ratio of prime age workers (25-54 years old) increased, and the rate of involuntarily part-time workers declined while those voluntarily working part-time increased. These are all pieces of good news. I expect these trends to continue in the right direction in December, or at least remain stable.
The one indicator that hasn’t improved over the year—and one we don’t expect to change in the December report—is nominal wages. Nominal wage growth has been consistently below target over the last five years, and last year was no exception. EPI has been tracking nominal wages, and it’s clear that the cumulative cost to slow wage growth is mounting. Indeed, nominal wages will be the key indicator to watch in 2015. As the labor market continues to improve, more people will find employment and the rolls of missing workers (those who have been sidelined in the weak economy) should shrink. As workers return to the labor force and get jobs, the unemployment rate will better reflect the state of the labor market. Eventually, a healthier labor market should translate into decent wage growth. The question is, when will workers start seeing the decent economic news reflected in their paychecks?
Moreover, as my colleague Josh Bivens has written, it’s important that the good economic news doesn’t prompt the Federal Reserve to raise interest rates any time soon. Many analysts and prognosticators worry that falling unemployment will cause wages to rise significantly, pushing up inflation above the Fed’s 2 percent target. But with wage growth continuing to be sluggish, there’s no reason to worry about runaway inflation. And putting the brakes on the economy too soon could have a disastrous impact.
Check back tomorrow when we’ll reflect on the 2014 labor market, including jobs, unemployment, and wages. We’ll update our missing workers calculator, assess the jobs gap, and analyze nominal wage growth in the context of Federal Reserve policy.
As I and others have written over the past month and half or so, President Obama’s new Deferred Action for Parental Accountability initiative (DAPA) will shield from deportation and provide work authorization to unauthorized immigrants who have a son or daughter who is a U.S. citizen or legal permanent resident, if they are not an enforcement priority and have been residing in the country for at least five years. DAPA will give the potentially four million who qualify the full spectrum of workplace rights provided under U.S. law. This means immigrant workers will be able to hold accountable employers who commit wage theft or violate workplace safety laws, without fearing threats of deportation that employers may lob at them to keep them from complaining. It’s easy to see how raising the floor for unauthorized immigrant workers in this way will benefit all workers, raise wages, and increase tax revenue. But nevertheless, not everyone is happy about it.
I always suspected that the agricultural industry would not support deferred action or any DAPA-like program, but until now the industry had been relatively quiet about their position. My assumption was that—because unauthorized immigrants comprise such a large share of the workforce employed in agricultural occupations, and because ag employers directly benefit from having unauthorized immigrant employees who can’t complain about dangerous workplaces where pesticides are in the air and extreme, triple-digit temperatures are the norm—they would find objectionable anything that increased farmworkers’ bargaining power or that allowed them to move to better-paying jobs in other industries. Because unauthorized immigrants don’t have a lot of bargaining power and are mostly employed by bosses willing to violate the law, they can’t easily get a job anywhere else, which means they have to put up with the low wages that are on offer in ag.
So I was pleasantly surprised to see some truth seep out onto the airwaves, thanks to a three-minute interview conducted by Tucker Carlson the other day on Fox and Friends, which sheds some light on what the ag industry really thinks about DAPA.
The United States failed to achieve a doubling of exports between 2009 and 2014, as promised in President Obama’s National Export Initiative (NEI). It wasn’t even close. Total U.S. goods and services exports increased by less than 50 percent ($766 billion, or 48.4 percent) between 2009 and 2014 (estimated), as shown in the figure below. Meanwhile, imports increased by an even larger $883.8 billion, and as a result, the U.S. trade deficit increased by $117.0 billion.
Expanding exports alone is not enough to ensure that trade adds jobs to the economy. Increases in U.S. exports tend to create jobs in the United States, but increases in imports lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. Between 2009 and 2014 the growth in imports more than offset the increase in exports, resulting in a growing trade deficit, as shown in the figure. Growing trade deficits have eliminated millions of jobs in the United States, and put downward pressure on employment in manufacturing, which competes directly with most imported products. For example, growing trade deficits with China alone have displaced 3.2 million U.S. jobs between 2001 (when China entered the WTO) and 2013, with 1.3 million of those jobs lost since 2009 alone.
U.S. exports, imports, and trade balance change, 2009 –2014
Sources: EPI's analysis of U.S. Census Bureau, U.S. International Trade in Goods and Services
People are excited by recent good news on the economy—especially the 321,000 jobs created in November and the 5.0 percent (annualized) growth rate posted by gross domestic product (GDP) in the third quarter of this year. The excitement is understandable—this is genuinely good news. Yet we shouldn’t lose sight of how far away from a healthy economy we remain. We’re climbing more rapidly out of the hole that the Great Recession left us in, but we’re still really only halfway there.
You can see this measured in terms of how many jobs we need to restore the labor market health that prevailed immediately before the Great Recession began, or in the share of “prime-age” adults (ages 25-54) that have jobs.
And in terms of restoring average wage growth we’re not even halfway there. In fact, we’re still essentially nowhere yet.
All of this makes one twist on the commentary about recent good news really odd—the idea that there may be a dark cloud to the silver lining if it makes the Fed raise interest rates sooner and slow recovery. This perspective shows just how strange an economic world we’re living in.
Yes, we’re now growing relatively fast, both on the GDP and jobs side. But that’s what’s supposed to happen following recessions: you have to re-absorb the workers who were laid-off during the recession as well as provide jobs for the normal inflow of potential workers into the labor force. What’s been remarkable in the recovery since the Great Recession so far is that this above-trend growth really never happened. Moreover, there’s nothing in a period of above-trend growth following a recession that argues the Fed must spring into action to stomp on it.
In the spirit of the season, this post combines a few of my favorite year-end traditions—reflecting on the past, setting goals for the future and December movie releases. At the top of my “movies to see” list is a remake of one of my childhood favorites, Annie. The 2014 adaptation of the film includes a few twists on the 1982 version of the film I first fell in love with—the most obvious being African American actors playing the lead roles of Annie and Will Stacks (originally Oliver “Daddy” Warbucks).
In fact, Annie’s story has been reincarnated many times over since cartoonist, Harold Gray, first introduced his Little Orphan Annie comic strip in 1924 but the basic premise has stayed the same. A rich benefactor, who has amassed immense wealth through capitalism (specifically in World War I, hence the name Warbucks), adopts a little girl and transforms her life from that of a poor, abused, outcast orphan into a beloved daughter with full access to anything she can dream of.
Early versions of the Little Orphan Annie comic strip often espoused views of politics that sound awfully familiar today—including the idea that providing the masses with jobs that pay fairly and treating workers with respect is the obligation of virtuous capitalists. Also central to the story of Annie is how the perspective and priorities of the adults in charge of her well-being shape the child’s future. As a man of great wealth, power and influence, Warbucks didn’t suggest a bootstraps approach as the way to a better life, rather he offered the girl support as needed and often intervened in Annie’s life during crisis.
While Annie’s story is a fictional expression of her creator’s political views, it can also serve as a metaphor for many of today’s social and economic challenges. I’m not suggesting in any way that paternalism is the solution to inequality and poverty. Rather, I offer a list of five things that might be different if more of our nation’s wealth, power and influence were used to positively transform lives and promote economic mobility.
In March 2014, President Obama directed Secretary of Labor Tom Perez to prepare an update of the regulations that govern exemptions from the Fair Labor Standards Act (FLSA) requirement that employers pay time-and-a-half for work beyond 40 hours in a week. The so-called “white collar” exemptions for professionals, executives, and administrators include a threshold salary below which every employee is guaranteed overtime pay regardless of his or her work duties. Above that salary level, the employer doesn’t have to pay anything for overtime hours—not even minimum wage—if the work performed meets certain criteria.
The salary threshold has rarely been increased, and since 1975, its real value has been eroded by inflation. It currently stands at $455 a week, or $23,660 a year—below the poverty level for a family of four and nothing like a true executive or professional salary. Whereas 65% of salaried workers were guaranteed overtime coverage by the salary threshold in 1975, just 11% are covered today.
In the past year, four significant proposals have been made to update the salary threshold, and each would guarantee coverage to a different number of workers. The figure and table below show that as the threshold increases, millions more employees are guaranteed overtime coverage.
On January 1st, 20 states will raise their minimum wages, lifting the pay of over 3.1 million workers throughout the country.1 New York, meanwhile, will have already raised its minimum wage on December 31st. In nine of these states (Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, and Washington) the increases are routine—the minimum wage in those states is “indexed” for inflation so that each year the minimum is automatically increased to account for rising prices. The increases in the other 11 states, plus DC, are the result of changes to minimum wage laws—either legislation passed by state lawmakers or referenda passed directly by voters at the ballot box. Later in the year, another half-a-million workers in Delaware and Minnesota will also get a raise as legislated increases take effect there.
As the table below shows, the increases range from a 12-cent inflation adjustment in Florida—raising the minimum to $8.05—up to a $1.25 increase in South Dakota that will lift the state floor to $8.50. The smaller inflation-linked increases will lift pay for the roughly 4 to 7 percent of workers with wages at or very close to the minimum. The states instituting larger increases, however, will see a more sizeable portion of the state workforce getting a raise—such as in Minnesota, where the $1.00 increase later in the year is expected to lift pay for nearly a fifth of wage earners in the state.
All told, these increases will provide workers with $1.6 billion in additional wages over the course of the year. This added pay represents a modest, but significant, boost to the spending power of the affected workers, many of whom have children and families to support.
Even in the states where the minimum is simply being adjusted for inflation, the buying power of low-wage workers is being preserved, so they can still afford the same quantity of goods and services year-to-year. Given that consumer spending accounts for roughly 70 percent of the U.S. economy, this automatic adjustment of the minimum wage each year should be a no-brainer. Just as workers across the spectrum need regular pay increases so they can continue to afford their basic needs, businesses need a customer base with growing incomes if they’re going to thrive and expand. And because minimum wage increases overwhelming benefit low- to moderate-income households, they’re an easy way to put more money in the pockets of families that are likely to go out and spend it right away. As the last column of the table shows, the $2.5 billion in added wages generated by next year’s increases will translate into about $1.1 billion in economic growth as those dollars ripple out through the economy.
It’s encouraging that five states—Alaska, Michigan, Minnesota, South Dakota, Vermont—and the District of Columbia that have larger increases taking effect next year also enacted indexing that will take effect in future years. As shown in the map below, this will bring the number of states with some form of indexing up to 15. The map also shows that as of the new year, 29 states and the District of Columbia (as well as a number of cities and smaller municipalities) will have minimum wages above the federal minimum of $7.25. At that time, 60 percent of all U.S. workers will be in states with wage floors above the federal.
All this action at the state level speaks to how broadly voters and policymakers throughout the country recognize that the federal minimum is too low. At $7.25 per hour, the federal minimum wage is worth roughly 23 percent less than it was worth in the late 1960s, and its eroding value has led to more and more workers turning to federal safety net programs because they’re paid too little from work to make ends meet. Given that the country has grown vastly richer and more productive over the past 45 years, there’s no reason why workers in any state should be getting paid less today than their counterparts a generation ago.
The good news is that states aren’t waiting for the federal government to act. This is the first time in history that so many states will be raising their wage floors in the absence of a federal increase, and the first time since 2008—when states were raising their wage floors in anticipation of the last federal increase—that so many states will be above the federal minimum. But many other states still have minimum wages at or below the federal minimum, and states with minimum wages that aren’t indexed will see their wage floors erode in the coming years. We need a national wage floor that ensures a decent level of pay for work regardless of what state one lives in. That’s why Congress should follow the example set by voters and legislators in their home states and raise and index the federal minimum wage—fixing this problem once and for all.
Note: This post has been updated from an earlier version. The previous version incorrectly accounted for state minimum wage increases that took place in 2014. The figures and table have been updated to correctly account for these increases. The earlier post also incorrectly stated that the DC minimum wage will take place on January 1. It will take place on July 1.
1. Although originally scheduled to take effect on January 1, the Alaska minimum wage increase will not go into effect until February 24th. This should not measurably change the statistics for Alaska listed in the table. Additionally, tens of thousands of workers in the District of Columbia will also get a raise next July when the District minimum wage rises from $9.50 to $10.50. Estimates for DC are not included here because data challenges make identifying affected workers in the District more challenging, although a ballpark estimate would be roughly 100,000 workers.
The Bureau of Labor Statistics released the Consumer Price Index for November 2014 today, which lets us look at trends in real (inflation-adjusted) wages. The figure below shows real average hourly earnings of all private employees (top line) and production/nonsupervisory workers (bottom line) since the recession began in December 2007. For both series, you can see that real wages fell during the recession, then jumped up in late 2008, in direct response to a drop in inflation. When inflation falls and nominal wages hold steady, the mathematical result is a rise in inflation-adjusted wages. After the deflation leading up to 2009 stopped boosting real wages, wage growth has been flat.
Real average hourly earnings, December 2007– November 2014
|All private employees||Production/Nonsupervisory|
Note: Earnings are adjusted to November 2014 dollars.
Source: Author analysis of Bureau of Labor Statistics's Current Employment Statistics and Consumer Price Index, public data series.
In the past month, we have also started to see falling prices, particularly with respect to gas prices. If nominal wage growth holds in the coming months, it may mean a rise in real wages. But so far, the data indicates that over the last year, real wage growth has continued to be stagnant. Average hourly earnings of private sector workers were $24.66 in November, and real hourly earnings averaged $24.51 over the last year. These wages are no better than we saw in the year ending November 2009 or November 2010, where average hourly earnings were $24.60 and $24.61, respectively. As shown in the figure below, real wage growth has been about zero on average for the last five years, and there is no sign of acceleration.
Year-over-year change in real average hourly earnings of all private nonfarm employees and private production/ nonsupervisory employees, November 2009– November 2014
|All Private Employees||Production/Nonsupervisory|
Note: Earnings are adjusted to November 2014 dollars. Light shaded area denotes recession.
Source: Author analysis of Bureau of Labor Statistics's Current Employment Statistics and Consumer Price Index, public data series.
The Federal Open Market Committee (FOMC) will meet on Tuesday and Wednesday of this week. Word on the street is that they will shift the language they use to describe the likely future path of short-term interest rates. Recently this language has stressed that very low short-term rates are likely to persist for “a considerable time.” The new language may instead stress the need for Fed “patience” with lower rates.
To real-life human beings, of course, parsing such language is an exercise that goes so far beyond splitting hairs it’s absurd.
But it matters. The Fed is the most important economic policymaking institution in the United States right now. They have, by far, the most influence on whether American workers’ hourly wages and living standards will begin rising or not in coming years. If they raise interest rates before genuine recovery from the Great Recession is secured, the hopes for real (inflation-adjusted) wage increases for the vast majority of Americans will be torpedoed. And, this switch from “considerable time” to “patience” will be interpreted as inflation hawks on the Fed who want to see an earlier interest rate increase gaining a small patch of intellectual territory.
Does surrendering this small patch of rhetorical territory actually mean that rates will begin rising faster than they would have otherwise? I have no idea.
Next year, we are going to see lots of debate over trade policy. And, like clockwork, when trade policy rises to the top of policy debate, lots of bad arguments start getting thrown around on behalf of more trade agreements. Ed Gresser submits the latest round of bad ones in a paper released last week.
Gresser goes wrong out of the gate by implying very strongly that inequality is irrelevant to the living standards of low and moderate-income households. In his own words he argues:
“But “growing apart” [editor’s note: this means the rise in inequality] appears to be a phenomenon in which wealthy people rise fastest, not one in which they rise while the middle class and poor lose ground. Americans have actually grown more affluent at all income levels.”
This implicit claim is deeply wrong—the rise of inequality over the past generation has in fact been the primary drag on living standards growth for low- and moderate-income families. Gresser arrives at his irrelevance conclusion by essentially noting that cumulative income growth for low- and moderate-income households has exceeded zero over multiple decades. Well, congratulations to us, I guess. But very few countries outside of maybe North Korea have ever posted negative income growth over decades for the majority of their population.
It’s especially ironic to get this interpretation of rising inequality wrong when discussing its with expanded trade. The standard trade theory that links falling trade costs and rising inequality in rich countries like the United States is clear that this rise in inequality is accompanied by absolute (not just relative) income declines felt by the losing group. In the United States, the losing group is generally proxied by either production and nonsupervisory labor, or workers without a college degree—in either case the majority of the workforce. And while these trade-induced losses (which I estimated to be roughly $1,800 annually for a full-time worker without a college degree) do not explain all, or even the majority, of the rise in inequality over the past generation, they’re not trivial. Gresser claims to have cast doubt on these results (which are based on off-the-shelf standard trade models), but as I’ll show below, his analysis of them is completely irrelevant.
What follows are lightly edited remarks made by EPI Research and Policy Director Josh Bivens at a Dec. 9 event—Managing the Economy: The Federal Reserve, Wall Street, and Main Street—sponsored by EPI, Americans for Financial Reform, and the Roosevelt Institute Project on Financialization. Sen. Elizabeth Warren and Paul Krugman were the event’s featured speakers.
The event examined key policy questions facing the Federal Reserve in coming years. Bivens’s remarks focused on the need for monetary policy to allow a genuine recovery to happen, and argued that fears over coming inflation should not persuade the Fed to hike short-term interest rates before a full recovery is achieved.
I’ll begin by trying to frame why we think the topics being addressed by today’s panels and speakers are so important.
They’re important first because the economy remains far from fully recovered from the Great Recession. In fact, even after last month’s excellent jobs report, we’re still only about halfway recovered in terms of employment conditions, evidenced in the figure below simply by the share of adults between the ages of 25 and 54 with a job. If I had to pick one desert-island measure of labor market slack, this one seems pretty good to me.
Congress has agreed to reduce the Internal Revenue Service’s fiscal year 2015 budget by about 3 percent (from almost $11.3 billion in fy2014 to $10.9 billion), with over half coming from the enforcement budget. The reduction is even larger after adjusting for inflation (almost 5 percent). This is just the latest IRS budget reduction; in inflation-adjusted terms the IRS budget has been cut by almost 18 percent since 2010.
Interestingly, earlier this week the IRS Oversight Board released the results from a survey of public attitudes on the IRS. Overall, the public appears to be satisfied with their personal interactions with the IRS—74 percent are either very or somewhat satisfied. Only 61 percent of respondents (still a majority) trust the IRS to fairly enforce the tax laws, and this number could plausibly be depressed as a result of the House GOP hearings on the possible IRS mishandling of some tax-exemption applications from conservative groups.
Two other results from the survey are notable (to me at least). First, 86 percent of respondents think it is unacceptable to cheat on their income taxes. Second, 56 percent agree that the IRS should receive extra funding to enforce the tax laws. Most Americans think it is wrong to cheat on taxes and are willing to pay a little more to catch the tax cheats, which brings me back to the IRS budget.
Most of the IRS budget is devoted to helping taxpayers with tax forms, catching honest mistakes by taxpayers, and catching tax cheats. Over the past few years, IRS’s enforcement actions have brought in about an additional $50 billion per year (this is above the $1.6 trillion collected in income taxes); this figure works out to about $10.60 in additional collections per enforcement budget dollar spent for the IRS (the average over several years).
If a $1 budget reduction yields a $10.60 reduction in enforcement collections, then the $191 million reduction in the IRS enforcement budget could prove to be a $2 billion tax cut for tax cheats. There appears to be a disconnect between what Congress enacts and what the American public wants.
Still No Skills Mismatch in the Economy: The Number of Unemployed Exceeds the Number of Available Jobs Across All Sectors
The figure below shows the number of unemployed workers and the number of job openings in October, by industry. This figure is useful for diagnosing what’s behind our sustained high unemployment. If today’s labor market woes were the result of skills shortages or mismatches, we would expect to see some sectors where there are more unemployed workers than job openings, and others where there are more job openings than unemployed workers. What we find, however, is that unemployed workers exceed jobs openings across the board.
Some sectors have been closing the gap faster than others. Health care and social assistance, which has been consistently adding jobs throughout the business cycle, has a ratio quickly approaching 1-to-1. On the other end of the spectrum, there are 6.2 unemployed construction workers for every job opening. Removing those two extremes, there are between 1.1 and 3.1 as many unemployed workers as job openings in every other industry. This demonstrates that the main problem in the labor market is a broad-based lack of demand for workers—not, as is often claimed, available workers lacking the skills needed for the sectors with job openings.
Unemployed and job openings, by industry (in millions)
|Professional and business services||1.1213||0.8374|
|Health care and social assistance||0.7088||0.6926|
|Accommodation and food services||0.9668||0.5724|
|Finance and insurance||0.2670||0.2235|
|Durable goods manufacturing||0.4880||0.1769|
|Transportation, warehousing, and utilities||0.3743||0.1638|
|Nondurable goods manufacturing||0.3168||0.1076|
|Real estate and rental and leasing||0.1182||0.0540|
|Arts, entertainment, and recreation||0.2227||0.0726|
|Mining and logging||0.0546||0.0285|
Note: Because the data are not seasonally adjusted, these are 12-month averages, September 2013–August 2014.
Source: EPI analysis of data from the Job Openings and Labor Turnover Survey and the Current Population Survey
After a larger than usual uptick in September, the quits rate fell slightly in October, while the hires and layoffs rates continued to hold steady, according the October Job Openings and Labor Turnover Survey (JOLTS)
The figure below shows the hires rate, the quits rate, and the layoffs rate. Layoffs, which shot up during the recession, recovered quickly once the recession officially ended—they’ve been at prerecession levels for more than three years. This makes sense. The economy is in a recovery and businesses are no longer shedding workers at an elevated rate. The fact that this trend continued in October is a good sign.
But not only do layoffs need to come down before we see a full recovery in the labor market, hiring needs to pick up. While the hires rate has been generally improving, it’s still well below its prerecession level.
Meanwhile, the voluntary quits rate, which has been flat since February (1.8 percent), saw a modest spike up in September to 2.0 percent, then fell to 1.9 percent in October. The overall trend in the recovery has been positive. A larger number of people voluntarily quitting their job indicates a labor market in which hiring is prevalent and workers are able to leave jobs that are not right for them, and find new ones. While there was a drop in October, these series are somewhat volatile and one should not rely too much on a one-month trend.
There are still 5.6 percent fewer voluntary quits each month than there were in 2007, before the recession began. A return to pre-recession levels of in voluntary quits would indicate that fewer workers are locked into jobs they would leave if they could.
Hires, quits, and layoff rates, December 2000–October 2014
|Month||Hires rate||Layoffs rate||Quits rate|
Note: Shaded areas denote recessions. The hires rate is the number of hires during the entire month as a percent of total employment. The layoff rate is the number of layoffs and discharges during the entire month as a percent of total employment. The quits rate is the number of quits during the entire month as a percent of total employment.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey
JOLTS Report Mostly on Trend: Jobs-Seekers-To-Job-Openings Ratio Falls Below 2.0 for the First Time Since the Great Recession
This morning’s Job Openings and Labor Turnover Summary (JOLTS) shows that the total number of job openings in October was 4.8 million, up 149,000 since September. Meanwhile, according to the Census’s Current Population Survey, there were nearly 9.0 million job seekers, which means there were 1.9 times as many job seekers as job openings in October. This is the first time since the Great Recession that the jobs-seekers-to-job-openings ratio fell below 2.0. While we are moving in the right direction, keep in mind that in a labor market with strong job opportunities, there would be roughly as many job openings as job seekers, while in October, job seekers still so outnumbered job openings that nearly half of the unemployed were not going to find a job no matter what they did.
The slight decline in the jobs-seekers-to-job-openings ratio in October comes on the heels of a steady decrease since its high of 6.8-to-1 in July 2009, as you can see in the figure below. The ratio has fallen by 0.9 over the last year.
At the same time, the 9.0 million unemployed workers understates how many job openings will be needed when a robust jobs recovery finally begins, due to the existence of 5.8 million potential workers (in October) who are currently not in the labor market, but who would be if job opportunities were strong. Many of these “missing workers” will go back to looking for a job when the economy really picks up, so job openings will be needed for them, too.
The job-seekers ratio, December 2000–October 2014
|Month||Unemployed job seekers per job opening|
Note: Shaded areas denote recessions.
Source: EPI analysis of Bureau of Labor Statistics Job Openings and Labor Turnover Survey and Current Population Survey
Furthermore, a job opening when the labor market is weak often does not mean the same thing as a job opening when the labor market is strong. There is a wide range of “recruitment intensity” with which a company can deal with a job opening. For example, if a company is trying hard to fill an opening, it may increase the compensation package and/or scale back the required qualifications. Conversely, if it is not trying very hard, it may hike up the required qualifications and/or offer a meager compensation package. Perhaps unsurprisingly, research shows that recruitment intensity is cyclical—it tends to be stronger when the labor market is strong, and weaker when the labor market is weak. This means that when a job opening goes unfilled when the labor market is weak, as it is today, companies may very well be holding out for an overly-qualified candidate at a cheap price.
For 5 years, the Obama administration has been trying to make reasonable improvements to one of the United States’ main guestworker program for lower skilled workers. The H-2B visa is used by businesses that want low-cost gardeners, hotel maids, cooks and dishwashers, forestry workers, workers to pick and pack crab meat, and various other kinds of laborers. The businesses that hire H-2B workers don’t want U.S. workers who expect a decent wage and they don’t want U.S. workers who might get sick of poor working conditions and quit to find a better job. They want migrant laborers from abroad, who may think being paid a poverty-level wage is a great windfall and who can’t quit—no matter how abusive the working conditions are—because they will be deported if they try to switch jobs. Many H-2B workers secure their temporary jobs in the United States by paying labor recruiters thousands of dollars to connect them to U.S. employers. The employers that ultimately hire them benefit from this arrangement because H-2Bs workers are so indebted to recruiters that their lives will be in danger if they return home before their contract is finished. Businesses call this a “reliable” workforce.
The Bush administration issued rules for the H-2B visa that gave businesses what they wanted: below-market wages so they could discourage U.S. workers from applying and underpay the migrants who did apply. EPI’s analysis has shown that the Bush rules led to wages that fell more than 25 percent below the true prevailing wage. Migrant advocates sued to have the Bush rules thrown out, and a federal court agreed. So the Obama administration set out to rewrite the rules to protect both U.S. workers who might want some of these jobs and the mostly Mexican migrants who come to work with H-2B visas. The Department of Labor issued rules to require more honest recruiting of U.S. workers before a business can look abroad, rules to protect the migrants against exploitation by recruiters and businesses, and—most importantly—a rule to set a true prevailing wage that businesses using the H-2B visa have to offer and pay to U.S. and migrant workers alike.
U.S. trade and investment agreements have almost always resulted in growing trade deficits and job losses. Under the 1993 North American Free Trade Agreement, growing trade deficits with Mexico cost 682,900 U.S. jobs as of 2010, and U.S.-Mexico trade deficits and job displacement have increased since then. President Obama promised that the U.S.-Korea Free Trade Agreement would increase U.S. goods exports by $10 to $11 billion, supporting 70,000 American jobs from increased exports alone. However, in the first two years after that deal went into effect, U.S. exports actually declined, and growing trade deficits with Korea cost nearly 60,000 U.S. jobs.
This is important to keep in mind as negotiations for the Trans-Pacific Partnership (TPP) resume in Washington this week. The United States has a large and growing trade deficit with the 11 other countries in the proposed TPP. This deficit has increased from $110.3 billion in 1997 to an estimated $261.7 billion in 2014, as shown in the figure below. With trade deficits already on the rise, it makes no sense to sign a deal that would exacerbate them further.
Meanwhile several members of the proposed TPP deal are well known currency manipulators, including Malaysia, Singapore, and Japan—the world’s second largest currency manipulator (behind China). Eliminating currency manipulation could reduce U.S. trade deficits, increase GDP, and create 2.3 million to 5.8 million U.S. jobs. The United States would be foolish to sign a trade and investment deal with these countries that does not include strong prohibitions on currency manipulation. Yet U.S. Trade Representative Froman has testified that currency manipulation has not been discussed in the TPP negotiations.
Trade and investment agreements negotiated in recent decades have been bad deals for working Americans. Fast track legislation would deprive Congress of the opportunity to amend proposed trade deals, leading to growing job displacement and downward pressure on American wages. It is time for Congress to take notice and assert its rightful role in providing advice and consent in the governance of U.S. trade and investment with other nations.
One month of adding upwards of 300,000 jobs is not enough to say the economy is strong. In fact, adding jobs at November’s rate of growth wouldn’t lead us back to pre-recession labor market health until October 2016. And, then, there’s the story of nominal wage growth. Last month, nominal—i.e., not adjusted for inflation—wages grew only 2.1 percent, about on pace with what we’ve seen the last five years. This sluggish wage growth is a key sign that there’s still too much slack remaining in the labor market.
Let me put 2.1 percent nominal wage growth into perspective. The Federal Reserve’s mandate is to balance the benefits of low unemployment versus the benefits of keeping inflation stable. One sign of growing inflationary pressure is when nominal (not real) wages are rising significantly faster than the Fed’s target rate of inflation (currently 2 percent, which is not set in stone but which is widely acknowledged to be what the Fed is aiming for) plus productivity growth (between 1.5 to 2 percent). Putting those together, we get a target between 3.5 and 4 percent. Now consider our recent nominal wage growth of 2.1 percent. The fact is that nominal wages have been growing far slower than any reasonable wage target for the last five years.
To provide some context and help explain the role nominal wage growth plays in policymaking, we created a new EPI feature, the Nominal Wage Tracker. This page hosts the most up-to-date information on nominal wages, tracks how the cumulative effect of wages continues to lag behind target levels, and relates both of these to labor’s share of corporate-sector income. One of the statistics our tracker measures is the size of the accumulated gap between target and actual nominal wage growth, which now stands at $3.16 an hour.
Dramatically falling employment in the Great Recession and its aftermath has left us with a jobs shortfall of 5.8 million—that’s the amount of jobs needed to keep up with growth in the potential labor force. Each year, the population keeps growing, and along with it, the number of people who could be working. To get back to the same labor market we had in 2007, we need to not only make up the jobs we lost, but gain enough jobs to account for this growth.
The chart below projects out the potential labor force into the future. We ran a variety of scenarios to determine how many jobs we would need to create each month to catch up to that line. The reality is that at November’s pace of job growth—which was an above average month—it will take until October 2016 to hit the employment level needed to return the economy to the labor market health that prevailed in 2007.
Yes, the jobs growth last month is good news, and I’m optimistic that we will continue to see job growth that strong or stronger in the upcoming months. But, it’s also higher than we’ve seen lately and could get revised downward next month. If we were to take the average monthly job growth over the last six months, we wouldn’t return to pre-recession labor market health until July 2017.
On the other hand, if we want to return to the labor market health that prevailed in 2007 much sooner, say, by creating 450,000 jobs per month, we would get there in March 2016. So, yes, 321,000 is a nice surprise, however, between the jobs gap and the sluggish wage growth, it is clear that we are fall from a full recovery.
It Is Indeed Morally Odious to Put Millions of Americans Through Harrowing Pain for Political Advantage
Yesterday, Ezra wrote a piece on a now-famous interview that Chris Rock did with Frank Rich. You should read the interview, it’s great. At one point, Rock floats the idea that President Obama would have received more credit for his efforts to fight the Great Recession if he had waited for a while after taking office before addressing the downturn. As Rock says in this snippet:
“When Obama first got elected, he should have let it all just drop.
Let what drop?
Just let the country flatline. Let the auto industry die. Don’t bail anybody out. In sports, that’s what any new GM does. They make sure that the catastrophe is on the old management and then they clean up. They don’t try to save old management’s mistakes.”
Ezra spends most of the article making the case that this strategy would be a political loser, but first notes (correctly) that:
“The big problem with this idea — which I’ve heard other liberals propose in the past — is it’s morally odious: it would have meant putting millions of Americans through harrowing pain in order to help Obama out politically.”
This is exactly right (well, I haven’t actually heard many liberals at all say this, but moving on); but we should remember that there really is a non-hypothetical set of policymakers who have precisely put millions of Americans through harrowing pain solely for their own political advantage: Republican members of Congress.
EPI has long documented wage trends. We have tracked real (inflation-adjusted) wage growth over the last month, over this business cycle, over the last 35 years, and over the last 60 years. What we measure when we look at real wages is how well workers and their families are doing—whether their wages are keeping up with inflation and whether the vast majority of Americans are seeing any increase in their standards of living. And, we’ve also proposed ways to Raise America’s Pay.
But wages can provide information on issues besides just the state of American living standards. They can also be a key indicator of macroeconomic health. One example is the degree to which wage growth puts upward pressure on prices. The Federal Reserve’s mandate is to balance the benefits of low unemployment versus the benefits of keeping inflation stable. One sign of growing inflationary pressure is when nominal (not real) wages are rising significantly faster than the Fed’s target rate of inflation (currently 2 percent, which is not set in stone but which is widely acknowledged to be what the Fed is aiming for) plus productivity growth (between 1.5 to 2 percent). The fact is that nominal wages have been growing far slower than any reasonable wage target for the last five years.
Tomorrow, we are unveiling our new Nominal Wage Tracker, which will host the most up-to-date information on nominal wages, released every month with the Bureau of Labor Statistics’ Employment Report. We will explain how slow wage growth continues to be a key signal of how far the U.S. economy is from a full recovery. In addition, we will track the cumulative effect of the ongoing failure of wages to hit target levels, and how this relates to labor’s share of corporate income.
Given this, the Nominal Wage Tracker will be a key tool to analyze whether the Federal Reserve should take action in the near-term to slow the economy. So far the wage tracker data shows that we are far from a full recovery. And, sluggish nominal wage growth is a key sign that there’s still too much slack remaining in the labor market.
Matt O’Brien hit the nail on the head in a Wonkblog post about non-compete agreements for doggy day care workers yesterday. Camp Bow Wow, as Dave Jamieson reports, forces new hires to agree not to work for a competing business within 25 miles of their location’s “franchise territory” for two years after leaving the company. Dog sitters obviously don’t learn valuable trade secrets that have to be protected from competitors, so something else is motivating the chain’s non-compete clause—just as trade secrets were not driving Jimmy John’s to restrict where its employees could work when they moved on from the sandwich shop. That motivation is wage suppression. As O’Brien puts it:
“Non-competes create a Balkanized labor force where you’re not a sandwich maker, but either a Jimmy John’s or Subway sandwich maker. Workers, in other words, are being forced to pledge fealty to companies that can still fire them at will. The payoff, of course, is that workers who, practically-speaking, can’t switch jobs are workers who can’t ask for raises.”
It’s common sense that increased experience in an occupation should eventually lead to higher wages and that if, for example, Camp Bow Wow doesn’t sufficiently reward an employee’s experience, some other dog care chain will. The employee might look around and find that experienced dog sitters are paid $1.00 an hour more at Camp Canine. But a non-compete agreement keeps the employee from jumping ship to take the better-paying job. A two-year restriction on competing dog-care employment means the employee has to leave the area to get the benefit of her experience. It’s not slavery, but as O’Brien points out, it’s not the kind of freedom capitalism promises, either. (If the National Right to Work Committee weren’t simply a union-hating sham, it would take up the cause of workers who are being forced to accept such contracts.)
Limiting the right to quit and take another job leaves the employer with ever more bargaining power. How do you negotiate a raise if your employer knows you can’t take your experience and knowledge elsewhere?