What to Watch of Jobs Day: Signs of tightening across the economy
As we await Friday’s employment report, and the likely bounce back from the disappointing payroll numbers we saw last month, I’m going to take the opportunity to discuss a couple key questions we should ask as the economy continues inching towards full employment. First, are we simply adding jobs or are we adding better-quality jobs? Second, is the recovery reaching all corners of the labor market?
Except for last month, the economy has been adding enough jobs over the last year to not only keep up with population growth but to pull in more workers off the sidelines. These workers come from those who were unemployed—that is, people who have been actively looking for a job—as well as those who were out of the labor force but who we would expect to return as job opportunities get stronger. As those formerly-sidelined workers get added to the employment rolls, there will be fewer workers left out trying to get in. Right now, employers hold the cards when it comes to determining employment conditions because, for the most part, they don’t have to offer better wages and benefits to attract and retain the workers they want—both employers and workers know those would-be workers are out there ready to replace any incumbent who makes wage demands that employers deem excessive.
As we approach full employment, that dynamic should slowly shift. We’ve begun to see evidence of broad-based wage growth in the last year as some amount of bargaining power moves in workers’ favor as the labor market tightens. With fewer workers on the sidelines, employers will have to work a bit harder—offering higher wages and better benefits—to attract and retain the workers they want. That is not to say that we should expect rapid and uncontrolled acceleration in wage growth, which the Federal Reserve fears will set off an inflationary spiral. Instead, upward pressure on wages will likely happen slowly and gradually, perhaps in one sector before others or in one part of the country before others. But, it will not happen at all if the Fed raises rates and slows down or halts the recovery.
If the economy is allowed to reach full employment, then workers across the labor market may be given a chance for real opportunities. Even though the overall unemployment rate now sits at 4.5 percent, it is far higher for particular groups of workers. For instance, the unemployment rate for black workers was 8.0 percent in March, twice as high as the rate for white workers at 3.9 percent. Another group that often gets overlooked and gets batted around more than most in the business cycle is young workers, whose unemployment is usually at least two times as high as the overall rate. At this time of year, many people are looking towards graduation and wondering what opportunities await them in the labor market.
Luckily for you, I’ve just published a paper detailing the prospects for young high school and college graduates. As with workers across the economy, young graduates’ economic prospects have brightened as the economy has gradually improved, and this year’s graduates may see better opportunities than their older brothers and sisters did when they graduated. Unemployment rates for young high school and college graduates have returned to within one percentage point of their pre-recession levels. But that’s pretty much where the good news ends. Underemployment continues to be elevated as young workers don’t get the hours they want or continue to be discouraged and a significant share of young workers continue to be “idled” by the economy (neither working nor in school). Large swaths of young college graduates are working at jobs that don’t require a college degree, and average wages of high school graduates are still below where they were in 2000.
For the benefits of a growing economy to reach all corners of the labor market, white as well as black, prime-age as well as young, and college-educated as well as high-school-educated, the labor market has to be allowed to tighten up enough to push up wages and opportunities for all.