Mixed Signals in the Labor Market
Job openings are growing, but wages need to play catch-up.
Five-plus years into the current economic recovery, the labor market is healing at last. So why do Americans still feel so blah when it comes to their financial well-being?
A look at the numbers suggests we should be peppier. The unemployment rate, now at 6.2%, is near a five-year low. For six straight months, more than 200,000 workers were added to payrolls, the longest such stretch since 1997. And job growth has been widespread across industries, from financial services to health care to construction. The quality of jobs is improving, too. Scott Anderson, chief economist with Bank of the West, says that although monthly numbers fluctuate, over the past 12 months more full-time than part-time jobs were created overall.
But the job market still has a long way to go before it hits full stride. “We’re making progress, and we’ve been doing it faster over the past six months than we have since the expansion began,” says Anderson. “But I’m not going to say, ‘Mission accomplished.’ ”
Indeed, by some measures, we’re still struggling. Job openings are up, for instance, but that isn’t translating into an equal number of new hires. “There’s a mismatch,” says Anderson. Employers are having difficulty finding employees with the right skill sets.” The average time it takes to get a job has dropped to 32.4 weeks from a high of 43 during the worst of the recession. But the historic average is 17 weeks. And the number of long-term unemployed—people who have been out of work for more than 27 weeks—stood at 3.2 million at last count, an improvement from 6.8 million at its worst but more than double the number before the recession. “If people drop out of the labor force and don’t come back in, it will affect long-term economic growth rates,” says Anderson.
Of course, the bottom line for most Americans is their paycheck—and that hasn’t been going up. Wage growth, by most measures, has averaged about 2% annually since mid 2009, roughly the rate of inflation. “That means there’s no real wage growth,” says Mark Zandi, chief economist with Moody’s Analytics, which is why most people say the economy is still in bad shape.
“If their pay increase is equal to inflation, they’re dead in the water,” he says. “And that’s a blah economy.”
If wages were to rise meaningfully (say, by 3% to 4%), then people would make more discretionary purchases, driving up demand for goods and services. In response, businesses would have to hire more people to help them supply those goods and services, which would, in turn, drive wages up. “It’s the chicken-and-egg problem,” says Heidi Shierholz, an economist with the Economic Policy Institute. “Wage growth would help the economy, but we’re still in a weak labor market. Employers don’t have to offer higher wages to attract workers because workers are desperate for a job.”
Salaries are on their way up, albeit slowly. Kiplinger’s projects that wage growth will hit 4% by 2017, a level that is likely strong enough for people to feel good about the economy. For now, expect the focus to remain on jobs. Says Shierholz: “The labor market is where the rubber meets the road. What job opportunities do I have? How good are the jobs? That’s what the economy means to most people.”