What to Watch on Jobs Day: Signs of tightening across the economy
Today is Latina Equal Pay Day, marking how far into 2017 a Latina worker would have to work in order to be paid the same wages as her white male counterpart was paid in 2016. As I illustrated in great detail, it is obvious that this wage gap between Latina workers and white non-Hispanic male workers is significant and persists across the wage distribution, within occupations, and among those with the same amount of education. Sizable gaps in the economic outcomes of various U.S. populations are striking and significant. This is one reason why it is imperative that the economy returns to full employment.
On Friday, the BLS will report the latest numbers on the labor market. Payroll employment growth was particularly weak (i.e. negative) the previous month due in part to the hurricanes, particularly in Texas. I expect there to be some bounce back in the October numbers. To uncover the meaningful trend, I would urge analysts to average the last two months rather than take either one as independent information. In order to just keep up with the working-age population growth, the U.S. economy needs to add at least 90,000 jobs a month. Given that September saw a drop of 33,000 jobs, I hope to see strong enough payroll growth in October that would be indicative of a return to the road to full employment.
The last time the U.S. economy was at genuine full employment was 2000 when the unemployment rate averaged 4.0 percent over the year and fell below 4.0 percent for five months, notably without sparking an inflationary spiral. While the overall unemployment rate is a useful metric, it masks important differences across the economy. The value of a full employment economy is even greater for workers with historically higher unemployment rates, for instance, young workers and workers of color. Young workers, for instance, experience unemployment rates about two times as high as prime-age workers and nearly three times as high as older workers.
While most demographic groups have seen impressive improvement in their unemployment rates throughout the recovery, we need to make sure we keep the bar high (or low in the case of the unemployment rate). For instance, while the black unemployment rate approaches its 2000 level, the black population has become increasingly more credentialed over the last 17 years. Therefore, the achievement of a similar unemployment rate does not mean that the economy is as strong for black workers as it was in 2000, confirmed by looking at black prime-age employment-to-populations ratios or unemployment rates within educational attainment groups. While black workers typically have much higher unemployment rates than white workers, tight labor markets disproportionately benefit them by inducing employers to hire them at faster rates and push their unemployment rate down disproportionately in coming years.
Not only are jobs be more plentiful in a full employment economy, but wage growth is stronger as well. Workers at the middle and bottom of the wage distribution rely most heavily on tight labor markets for strong wage growth. My colleague Valerie Wilson has demonstrated that the wage growth of black workers is more responsive to aggregate labor market changes than those of white workers. That means in bad times they see disproportionate losses and in good times they see disproportionate gains.
For the benefits of a growing economy to reach all corners of the labor market, black and Hispanic as well as white, young as well as prime-age, and high-school-educated as well as college-educated, the labor market has to be allowed to tighten up enough to push up wages and opportunities for all. While we cannot see some of these dimensions in the monthly jobs report—and many we do see should be viewed in longer term trend because of data volatility—the simple fact of the economy continuing to recover and absorb a larger and larger share of the population into the ranks of the employed means we are continuing on the all-important road to full employment.