Summary: Let’s look behind the unemployment numbers and see the disturbing truth about the most important market in America – the market for labor.
I have long been critical of the news media and the narratives journalists spin. I have long believed that the economic statistics produced by the US government and private companies provide a reliable picture of the economy – when properly used. The past year has provided ample evidence that the former belief is correct (see America is a nation lit only by propaganda) but also that the latter might be wrong. This post might go on my Smackdowns Page, another on my too-long list of mistakes.
Why do so many observations paint a different picture than do the official employment statistics and the cheery narratives of journalists? I have no explanation. But such anomalies demand attention, like the iceberg looming ahead as the Titantic steamed through the night at full power.
A graph of which we can be proud: unemployment at a 49-year low.
About our wonderful, even too strong, job market
See this from the Fed’s January 2020 “Beige Book” – about employment and wages.
“Employment was steady to rising modestly in most Districts, while labor markets remained tight throughout the nation. Most Districts cited widespread labor shortages as a factor constraining job growth, and, in a few cases, business expansion. …Wage growth was characterized as modest or moderate in most Districts – similar to the prior reporting period – and there were scattered reports of wage increases from year-end hikes in minimum wages. A few Districts also noted the use of benefits, incentives, training programs, and automation to reduce vacancies.”
Economists’ models support this narrative. The “natural rate of unemployment” (aka NAIRU, see Wikipedia) is the unemployment rate below which businesses must push hard to compete for workers – especially with better working conditions and higher wages (more about it here). By this logic, rapid wage growth should have begun several years ago. From 2009 to 2015, NAIRU was estimated at 5-6%. The unemployment rate broke below 5% in January 2016.
NAIRU is now estimated at roughly 4.5%. The U-3 unemployment rate broke below that in May 2017, and is now 3.5% (see table A-15 for the six measures of unemployment tracked by the BLS).
About that wonderful wage growth – not.
Look at the average hourly wages of production and non-supervisory workers in the private sector – roughly 80% of all workers. This excludes government workers, those among the lucky few with strong unions. It excludes supervisory workers and professionals, many of whom are in the grifter economy (i.e., extracting the bulk of America’s productivity growth). How well have these workers, the rest of us, done?
Since the end of the Great Recession (almost 11 years), real wages for these workers are up 7.8% (+0.7%/year). That is not much. Those business executives screaming about workers’ wages just do not want to share – and believe that they can do quite well without giving higher wages to workers.
Real wage growth since May 2017, when the job market became “tight”, is only +2.2% (1.4%/year). That does not do much to retain employees and pull more workers into the labor markets.
This is not what a tight labor market looks like.
Anecdotal data ruins the narrative
My family moved from the San Francisco Bay Area (unemployment rate 2-3%) to Iowa (2.3%). In both regions, employers complain about the labor shortage. In neither place is there evidence of any shortage, except (as always) in some currently hot skills. Nor is there the widespread “acceleration” of wages resulting from unemployment below the “natural rate.”
Sidenote: The Fed never worries about an “acceleration” of profits, only wages.
The job market has the characteristics of a surplus of workers (Marx’s “reserve army of labor“).
A large fraction of jobs are offered only part-time, with few or no benefits. This gives employers maximum leverage over their employees, able to adjust their hours as punishment/reward or to reflect changing business activity. The later shifts much of the risk of business fluctuations to their workers.
In businesses (such as retail) that have long workdays, employee schedules are capriciously set. This makes it impossible for those with part-time positions to work multiple jobs. Worse, arranging one’s personal life is difficult. Body rhythms are scrambled. In a tight labor market, employers seeking to retain employers exert themselves to provide scheduling stability.
Wages are low vs. the region’s cost of living. Raises are slow and small. Price is the primary indicator of conditions in any market.
Another indicator of tight labor markets is the average weekly overtime of hourly workers. The Fed shows this only for manufacturing – now 4.2 hours/week, below average for non-recession years since 1990.
Employers set high requirements for jobs. Most commonly, requiring college degrees from jobs that barely require a high school education. Many job descriptions require elaborate skills, which workers must acquire at their own expense on their own time (in a tight labor market, employers train people). Many jobs that are essentially entry-level require extensive previous relevant experience. This indicates a buyers’ market for labor.
Age discrimination is ubiquitous. In a tight job market, wages rise to bring retired or semi-retired people back into the labor force. Now the opposite is commonplace. A recruiter I worked with in the Bay Area said that she was considered almost too old at 45.
Management jobs (i.e., salaried) often have low wages per hour due to the long work-weeks. They are often expected to work extra hours to cover for absent workers or do special projects (rather than paying hourly employees overtime). Lots of people out there desperate to climb the ladder out of part-time minimum wage jobs.
Employers treat employees as disposable cogs, the opposite of the “talent hoarding” seen in tight job markets.
Brutal tactics are employed to cram-down wages. I heard of a nation-wide chain that reduced the number of second-tier managers at their stores. Those losing their jobs were told to re-apply for third-tier management positions at the store (at lower wages).
People at both ends of their careers have long job searches.
What about all those job openings?
Many openings result from the high turnover caused by difficult working conditions. Many jobs, especially in retail and warehousing, are physically brutal. People get exhausted as businesses squeeze them dry. There are always more people looking.
Many employers publish openings with fantastic combinations of high requirements and relatively low pay. They are fishing. It costs them nothing and sometimes they get lucky. I have seen many of these jobs on the local job listing services remain there for over four months. Employers point to those openings as evidence of a tight labor market. In fact, they show the opposite.
A long-term imbalance between supply and demand almost always results from pricing power by the party with the stronger hand. Now that is businesses.
What about all those news stories?
They are propaganda, like so much of the news these days. My favorite examples of fake news are the “skills shortages” stories. While there are always some specific skills where demand exceeds supply (these imbalances require years to resolve), most of these stories reflect businesses hammering down wages to create shortages. Improving wages and benefits, working conditions, and terms of employment (especially job security) would make most labor “shortages” disappear like last winter’s snow.
- The airlines’ crippling pilot shortage: another bogus “skills” crisis.
- So many open jobs for truck drivers! It’s another bogus skills shortage story.
- Ignore the hype. There are few shortages of skilled workers in America.
Other than pay (the biggest indicator), the other labor market statistics show a tight labor market – after the longest econ expansion on record. How can we have a labor surplus with per capita real GDP up 11.4% since the previous peak?
I have no explanation. But I have found that these kinds of anomalies are signals that cannot be safely ignored.