Today’s JOLTS report shows that the Fed did the right thing by lowering rates
Below, EPI senior economist Elise Gould offers her insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for August. Read the full thread here.
Labor market churn continues to decline in August as hiring stays soft and quits tick down while layoffs remain low. After a lot of job switching two years ago, workers are staying put.
Latest #JOLTS report from the BLS: https://t.co/dXEZgZoGFw pic.twitter.com/1kMjRvlFL7
— Elise Gould (@eliselgould) October 1, 2024
Today’s JOLTS report shows that the Fed did the right thing by lowering interest rates in September. With the hires rate softening, rate cuts are needed to mitigate any additional weakening.
— Elise Gould (@eliselgould) October 1, 2024
Access to paid sick leave continues to grow but remains highly unequal
Absent federal action, states and localities have expanded workers’ ability to earn paid sick leave to care for themselves and their families. The results of these efforts over the past dozen years are clear: there have been significant gains in access to paid sick time among private-sector workers. The latest data released this morning from the Bureau of Labor Statistics show that these trends continued into 2024: 79% of private-sector workers have the ability to earn paid sick leave, an increase from 63% in 2012.
While these gains are welcome news for millions of working families, access to paid sick leave remains vastly unequal. As shown in Figure A, higher-wage workers have greater access to paid sick days than lower-wage workers. Among the 25% of private-sector workers with the highest wages, 94% have access to paid sick days. By contrast, among the 25% of workers with the lowest wages, only 58% have access to paid sick days. Prior releases have shown that the bottom 10% fare even worse, with only 39% having access to paid sick days in 2023 (though their access has improved, likely from state action).
A misleading economic study undersells the benefits from increasing the minimum wage in five cities in Boulder County
Five municipalities in Boulder County are considering increasing their minimum wages above Colorado’s current level of $14.42 an hour. An economic study commissioned by the municipalities shows that increasing their minimum wages will significantly raise pay for low-wage workers, but also misleadingly characterizes employment losses from the policy.
Background
In 2019, the Colorado state legislature repealed state preemption of local minimum wages. Since then, Denver ($18.29), Edgewater ($15.02), and unincorporated Boulder County ($15.69) have increased their minimum wages above the state level. Boulder County will raise the minimum wage gradually to $25.00 an hour by 2030, before being indexed to inflation thereafter.
Advocates in Boulder County targeted $25.00 an hour due to research on the county’s “self-sufficiency standard”, an estimate of the income necessary for a family of four to cover their basic needs.1 Similarly, EPI’s Family Budget Calculator estimates that a Boulder County family with two full-time working adults and two children needs a wage of at least $26.24 an hour to cover basic expenses like housing, food, transportation, health care, and child care. Since Boulder County’s minimum wage will not reach $25.00 until 2030, we can expect the costs in the county to be higher than they are today, even with lower inflation than has been experienced in recent years. While the $25.00 an hour target is a much stronger standard than the Colorado state minimum wage policy, it is not extreme compared with the costs low-wage workers face in Boulder County.
Since Boulder County’s minimum wage only applies to the unincorporated areas in the county, five municipalities (Boulder city, Longmont city, Lafayette city, Louisville city, and the Town of Erie) in the county are currently exploring increasing their own minimum wages.
Why the Fed should cut interest rates this week
Better late than never, the Federal Reserve will almost surely cut interest rates at the Federal Open Market Committee (FOMC) meeting later this week. This cut is too long in coming—disinflationary pressures have been apparent in the economy for almost two years by now. In essence, the Fed decided to discount these disinflationary pressures and to only cut rates when inflation was not just falling rapidly, but was also low and extremely close to their 2% target. This approach took on far too much risk of throwing the economy into a totally unnecessary recession by keeping interest rates too high for too long. So far, a recession or damaging slowdown has thankfully been avoided, but there has been some notable labor market softening in recent months. Given all of this, the Fed should see its job now as quickly getting much closer to neutral on interest rates. This means cutting by at least 2 percentage points over the next year—so a cut of 50 basis points this week would be a better start than 25.
Background on interest rates compared with 2019
The effective federal funds rate today sits between 5.25-5.5%. In 2019, right before the pandemic hit, it sat between 1.5-1.75% (after a recent cut). Estimates of the “neutral” federal funds rate—the rate that is neither providing stimulus and inflationary pressure to the economy nor is it providing contraction and deflationary pressure—is roughly 2.5-3.5%. The neutral rate is often presented in real (inflation-adjusted) terms, with the inflation assumption being that the Fed is hitting its 2% target. That means a 1% real neutral rate should be read generally as a 3% nominal effective federal funds rate.
Figure A below shows one estimate of the neutral federal funds rate as well as the actual rate in recent years. By all estimates, today’s effective federal funds rate is far from neutral—it is clearly in contractionary territory. And by almost all estimates, the 2019 effective federal funds rate was far from neutral—clearly in stimulative territory.
Latest data show that recent immigrant population growth is not unprecedented and below historical peaks: New immigrants help grow the economy
Although recent headlines claim that immigration is historically high or even “unprecedented,” new U.S. Census Bureau data show that immigration flows were relatively high but not unprecedented between 2022 and 2023, and were below the historical peaks in the late 1990s. These flows of new immigrants will benefit both immigrants and U.S.-born workers, as shown by many examples of credible economic research—though these benefits could significantly expand and help more workers if immigration policies were reformed to ensure that immigrants are granted full rights as workers in the U.S. economy.
The most recent estimates from the American Community Survey (ACS) indicate that the number of immigrants residing in the United States grew by 3.6% between 2022 and 2023 (see Figure A). This is below the historical peaks of 5.5% annual growth in the immigrant population that the United States experienced between 1994 and 2000, according to Current Population Survey (CPS) data.1 More recent CPS data show that the 2022–2023 immigrant population growth rate was 3.7%, similar to ACS estimates.
Real median household income rose sharply in 2023—a testament to the strength of the economic recovery
Today’s Census Bureau data on earnings, income, and poverty in 2023 confirmed many of the predictions made in our preview last week. The strong labor market and falling inflation translated into increases in real median household income and decreases in the official poverty rate.
Real (inflation-adjusted) median household income increased by 4.0% to $80,610, the first increase since the pandemic. Between 2022 and 2023, the labor market added 3.5 million jobs while real wages increased. Considering most households rely on income from work to make ends meet, it’s no surprise that median household income increased in 2023.
Today’s data highlight the extraordinary strength of the recovery from the economic crises caused by the pandemic, a recovery driven by policy choices—particularly large fiscal relief and recovery packages—that aimed to quickly heal the labor market. The rapid growth of household incomes charted in today’s data is powerful evidence that the policy approach of recent years was the right choice.
Officially, median household income for 2023 is statistically indistinguishable from the last income peak of 2019. While that is the case in the official data, it is important to note that there were significant data collection issues in the survey for 2019 as responses were collected just as the pandemic hit in early 2020. The pandemic disruptions introduced significant “nonresponse bias”—meaning it was harder to talk to households to collect the data, and the households who were harder to reach were disproportionately lower income. This nonresponse bias boosted income measures in 2019 artificially. Census Bureau researchers subsequently estimated that this bias meant that real median income was 2.8% lower in 2019 than reported in the initial release. If we applied this data correction to income levels in 2019, this would mean that real household incomes in 2023 rose above 2019 levels and are now at their highest level on record.
Other welcome news include that income for lower-income households rose faster than for those at the median or at the top. Income for the 10th-percentile household increased 6.7% between 2022 and 2023. Income for high-income households—at the 90th percentile—rose 4.6%. This significant increase for lower-income households led to a drop in the official poverty rate of 0.4 percentage points to 11.1% in 2023.
The labor market remains strong yet the Fed should cut rates in September
Two things are true right now for the U.S. economy:
- The labor market is extraordinarily strong when judged by any historical benchmark.
- The Federal Reserve is behind the curve in cutting interest rates and should start cutting them at the Federal Open Market Committee (FOMC) meeting next week, aiming for something like a federal funds rate that is at least two percentage points lower by mid-2025.
These might strike some as being in tension—normally we want the Fed to cut interest rates to stimulate a weak economy. Why then, if the labor market is quite strong, do we need them to cut?
Simply put, the interest rates the Fed controls are now at levels that are highly contractionary—they are rates you would want if your goal was to substantially slow the pace of aggregate demand growth (say because you were trying to quickly reduce inflation). There’s a whole debate to be had about whether or not the Fed should have raised rates this high and this fast in an effort to combat the post-pandemic inflation, but regardless of where you landed in that debate, it seems far clearer that today’s economy does not need a rapid reduction in aggregate demand.
Most minimum wage studies have found little or no job loss
There is always a great deal of political heat around minimum wage increases, largely driven by concerns about job losses. After a minimum wage increase, the story goes, many employers will not be able to afford to pay their workers the new higher minimum wage and will therefore shrink their payrolls. If these job losses are large enough, they could even swamp the higher wages and lead to lower overall wage income for the entire group of affected workers.
Actual evidence shows that this narrative is largely wrong. A new review that I co-authored with Arindrajit Dube finds that most minimum wage studies find no job losses or only small disemployment effects. In other words, the vast majority of minimum wage research implies that minimum wage policies have unambiguously raised the total earnings of low-wage workers.
This conclusion is strengthened by focusing on the studies that examine broad groups of low-wage workers or the overall workforce, not just narrow segments like teenagers. As the figure below shows, the median employment response is essentially zero among these more comprehensive studies, with 90% of these studies finding no or only small disemployment effects.
A 2023 Census data preview: Household incomes likely rose because of a strong labor market and falling inflation
Between 2022 and 2023, the unemployment rate held steady at 3.6% as the labor market added 3.5 million jobs. Over the same period, wages rose faster than inflation—which fell nearly in half. Upcoming Census Bureau data for 2023—set to be released on Tuesday—will reflect how these factors impacted annual earnings, income, and poverty of workers, families, and children across the country.
In 2022, the poverty rate increased and incomes fell as high inflation and the loss of pandemic-era safety net programs overshadowed labor market improvements. Even though those safety net programs have not returned, the Census data will likely show that a continued strong labor market coupled with falling inflation meant that livings standards increased among U.S. households in 2023.
In this blog post, we find:
- The labor market continued to pull workers off the sidelines as job growth was strong across demographic groups, particularly for those often left behind by economic growth.
- After spiking in 2022, inflation dropped sharply in 2023, far faster than the milder deceleration in nominal hourly and weekly wages. Real—inflation-adjusted—wages rose between 2022 and 2023, particularly among lower-wage workers, women, and Black workers.
The labor market recovery strengthened in 2023
The labor market experienced a tremendous bounceback from the depths of the pandemic recession. Large-scale policy interventions early in the recovery, such as expanded unemployment benefits and economic impact payments, helped families stay afloat and drove a recovery several times faster than the drawn-out recovery from the Great Recession. This strong fiscal boost is why it took just two years to regain the pre-pandemic prime-age employment-to-population ratio (EPOP)—the share of the population 25–54 years old with a job—compared with about 10 years to reach the same point following the Great Recession.
Figure A illustrates that the labor market continued to expand for workers in 2023. Even as the low unemployment rate held steady at 3.6%, the share of the population with a job grew, including for young adults (18–24 years old) and prime-age adults.
Among prime-age workers, Black and women workers had the largest gains. In particular, Black men’s EPOP rose 1.7 percentage points and Hispanic women’s EPOP rose 1.5 percentage points between 2022 and 2023. Black and white women also experienced solid gains.
In fact, Black workers and women overall—including Black, Hispanic, and white women—experienced historically high employment rates in 2023. While disparities remain, this means that the stakes for a robust labor market recovery are even higher for historically marginalized groups.
Labor market expansion between 2022 and 2023 was experienced most acutely by women as well as Black workers: Percentage-point change in employment-to-population ratio between 2022 and 2023 for select demographic groups
| Category | 2022-2023 percentage point change in EPOP |
|---|---|
| All | 0.3% |
| 16-24 | 0.7% |
| 25-54 | 0.8% |
| Black 25-54 | 1.4% |
| Women 25-54 | 1.1% |
| Black Men 25-54 | 1.7% |
| Black Women 25-54 | 1.1% |
| Hispanic Women 25-54 | 1.5% |
| White Women 25-54 | 1.0% |
Note: Race and ethnicity categories are mutually exclusive (i.e., Black non-Hispanic, Hispanic, all races). Young adults is defined as between the ages of 16 and 24. Prime-age is defined as between the ages of 25 and 54.
Source: Economic Policy Institute, State of Working America Data Library, “Employment-to-population ratio,” 2024.
Inflation fell sharply in 2023—paving the way for real wage increases
Even though job growth was strong and unemployment fell sharply in 2022 from the year before, the inflationary spike of that year swamped much of those gains. Between 2022 and 2023, however, inflation fell nearly in half, from 7.7% to 3.9%. Figure B shows this sharp decline in inflation juxtaposed against the much slower deceleration in average hourly wages and weekly earnings. As a result, nominal wages exceeded price growth in 2023, causing real hourly wages to rise.
Average nominal weekly earnings—perhaps a better signal for the annual income data out next week—also increased faster than inflation between 2022 and 2023.
Inflation fell sharply in 2023 even as nominal wages decelerated: Percent change in inflation, nominal hourly wages, and nominal weekly earnings in 2022 and 2023
| Category | 2022 | 2023 |
|---|---|---|
| Inflation | 7.7% | 3.9% |
| Hourly wages | 5.4% | 4.6% |
| Weekly earnings | 4.8% | 4.2% |
Note: Inflation data for 2023 represents a change in annual prices using the Chained CPI from 2022 to 2023; likewise, inflation data for 2022 is the annual change between 2021 and 2022.
Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics and Consumer Price Index public data series.
Real wages rose in 2023
Figure C illustrates real wage changes between 2022 and 2023 for select wage levels, educational attainment, and demographic characteristics. As with the last four years in general, lower-wage workers have experienced faster wage growth.
Very low-wage workers (10th percentile) and low-wage workers (20th percentile) saw strong wage growth of 4.4% and 2.6%, respectively. Workers with lower levels of formal educational attainment also experienced relatively faster wage growth. Taken together with expanding employment, these trends are a promising sign that poverty may have fallen in 2023. Unfortunately, the pandemic safety net measures so critical coming out of the recession have long since expired, dashing any hopes of returning to the historically low poverty rates of 2021 (as measured by the supplemental poverty measure which includes those additional income sources).
While slower than the tremendous growth for lower-wage workers, middle-wage workers—the average of the 40th to 60th percentiles—saw their hourly pay rise by 0.9%. As with employment opportunities, the strongest middle-wage growth was among Black workers and women workers, each increasing 1.1% over the year.
Real wages rose between 2022 and 2023: Percent change in inflation-adjusted wages for select part of the wage distribution and demographic groups
| Wage Levels | |
|---|---|
| Very low wage | 4.4% |
| Low wage | 2.6% |
| Middle wage | 0.9% |
| Less than HS | 1.5% |
| High School | 0.4% |
| Some college | 1.0% |
| Women | 1.1% |
| Men | 0.5% |
| AAPI | 0.6% |
| Black | 1.1% |
| Hispanic | 0.5% |
| White | 0.8% |
Note: Race and ethnicity categories are mutually exclusive (i.e., Black non-Hispanic, Hispanic, all races). AAPI is Asian American Pacific Islander. Very low wage is the 10th percentile wage, low wage is the 20th percentile wage, and middle wage refers to the average of the 40th to 60th percentiles for all demographic groups. Wages by education group represent average changes.
Source: EPI analysis of the Current Population Survey Outgoing Rotation Group microdata, EPI Current Population Survey Extracts, Version 1.0.48 (2024a), https://microdata.epi.org.
Overall, I’m optimistic that a growing labor market, falling inflation, and rising wages will lead to a solid Census report on earnings, incomes, and poverty. Hopefully the stronger growth among historically disadvantaged groups will mean some shrinking of persistent large disparities.
The labor market remains strong with 142,000 jobs added in August
Below, EPI economists offers their insights on the jobs report released this morning, which showed 142,000 jobs added in August.
From EPI senior economist, Elise Gould (@eliselgould):
A slow down in job growth is expected as we approach full employment. By all measures, we are still in a strong labor market, but the Fed needs to lower interest rates to levels consistent with where we are in terms of inflation and trends in key labor market metrics.
— Elise Gould (@eliselgould) September 6, 2024
Nominal wage growth is strong, but remains fully consistent with the Fed’s inflation targets. pic.twitter.com/zXeFOZDuM0
— Elise Gould (@eliselgould) September 6, 2024
From EPI economist, Hilary Wething (@hilweth):
This #Jobs report really highlights why we shouldn’t take any single data point too seriously–instead look at the trend and put estimates in context with multiple measures. For ex: the spike in temp layoffs we saw last month was totally reversed this month! https://t.co/6BWlEtt3Uw
— Hilary Wething (@hilweth) September 6, 2024