Sluggish Wage Growth Not Surprising Given the Slack in the Labor Market
The top line story coming out of today’s jobs report should be about wages. Nominal wage growth remains sluggish—far too slow to set a time frame for raising interest rates, or even start a conversation about it. For more on that, see the most recent monthly wages figure and quarterly data and this explainer.
Job growth, meanwhile, has been solid, but not strong. The unemployment rate is still slowly moving in the right direction. But, we are still far from the economy we had before the great recession began. At the rate jobs were added in October (214,000), it will be 2018 before we return to 2007 normalcy.
The employment-to-population ratio for prime-age workers is a great measure of the economy—and a favorite of my predecessor—which captures a variety of different labor market components. The employment-to-population ratio (or EPOP) is simply the share of the population with a job. This allows us to sidestep the issue of whether potential workers are in the labor force—though we know there are still a lot of missing workers out there (5.75 million at last count). Also, when we restrict our attention to prime-age workers (25-54 years old), it serves the important purpose of avoiding confounding changes in employment that are not due to labor market conditions, but are instead due to longer-run structural factors, such as baby boomers hitting retirement age.
From the figure below, it is clear that jobs are returning—EPOPs have been on the rise. Growing shares of prime-age workers are getting jobs. That is good news, but it’s clear how far we have to go—look at the sharp drop in the EPOP during the great recession. Then, it is clear that we are slowing climbing out, but we have far to go.
Employment-to-population ratio of workers ages 25–54, 2006–2014
|Month||Employed as a share of population|
Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey public data series.
This slow but positive trend is also reflected in the unemployment rate, which is now at 5.8 percent. Again, far from a full employment unemployment rate, but slowly moving in the right direction. Let’s look under the hood of the unemployment rate for a minute. The table below shows the current unemployment rate and the unemployment rate in 2007, along with the ratio of those two values, for various demographic and occupational categories.
There is currently substantial variation in unemployment rates across groups, as is always the case. A key message from this table is that the unemployment rate is between 1.2 and 1.6 times as high now as it was seven years ago for all groups. Today’s sustained high unemployment relative to 2007 across all age, education, occupation, gender, and racial and ethnic groups underscores that the jobs crisis stems from a broad-based lack of demand. In particular, unemployment is not high because workers lack adequate education or skills; rather, a lack of demand for goods and services makes it unnecessary for employers to significantly ramp up hiring. In fact, the most elevated unemployment rate as compared to 2007 is for workers with at least a college degree.
Unemployment rates of various demographic groups, 2007 and today
|Workers age 25 and older|
|Bachelor’s and advanced degree||2.0||3.1||1.6|
|Workers under age 25, not enrolled in further schooling|
|High school degree||12.0||16.8*||1.4|
|Bachelor’s and advanced degree||5.4||7.5*||1.4|
|Management, professional, and related occupations||2.1||3.1*||1.5|
|Sales and office occupations||4.3||6.2*||1.4|
|Construction and extraction occupations||7.6||10.0*||1.3|
|Installation, maintenance, and repair occupations||3.4||4.5*||1.3|
|Production, transportation, and material moving occupations||5.8||7.7*||1.3|
|Wholesale and retail trade||4.7||6.4*||1.4|
|Transportation and utilities||3.9||6.0*||1.5|
|Professional and business services||5.3||7.2*||1.4|
|Education and health services||3.0||4.2*||1.4|
|Leisure and hospitality||7.4||8.8*||1.2|
* This is a 12-month average (November 2013–October 2014), since this series is not seasonally adjusted.
Source: Author's analysis of the Current Population Survey public data series
So, yes, the big story is about wages, and why they are so sluggish. The answer is obvious—there is still tremendous slack in the labor market no matter how you slice it.