Update 396 — The Contrast is Striking:
Workers Tell Tale of Two Labor Markets
For those on the lookout for harbingers of recession — today’s New York and Atlanta Fed projections for startlingly low 4Q19 growth being the latest — the labor market presents a unique challenge. Unemployment is neither a leading nor lagging indicator. It spikes without warning and does not relent until the damage is done and the recovery has begun.
So it pays to watch carefully for unemployment’s own set of indicators, trends in new temp vs. permanent jobs, hours worked, multiple jobs held, changes in pay, etc. We look behind the aggregate job figures that paint a picture-perfect portrait of a monolithic market and officially, full and record levels of employment.
Good weekends all…
From 30,000 feet, all seems well with the Trump economy. The unemployment rate is 3.6 percent and the stock market continued to break records this week.
But economic anxieties are bubbling to the surface. The Conference Board’s Consumer Confidence Index hit its lowest point in over two years, last month. U.S. manufacturing is in recession, business investments have been shrinking for the past two quarters, and productivity fell last quarter for the first time since 2015. Income inequality continues to grow and nearly 40 percent of all American families do not have $400 on hand in case of an emergency. Workers’ take home pay has barely moved in the past five years.
On October 25, the United Autoworkers (UAW) union ended their 40 day strike against General Motors. Last year, 485,000 employees were involved in major work stoppages — the highest number since 1986, per the Bureau of Labor Statistics, with stagnant wages and diluted benefits as a common thread. While the gig economy has grown, it adds stress for many American workers. Despite all of this, President Trump continues to call the economy “the greatest in our history.”
Contrary to what pundits and administration officials say, the labor market is not entirely healthy, and any decontextualized unemployment figure obscures what is actually happening. In the event of a recession, what happens to the American worker?
Diving into the Numbers that Divide
The nation’s topline unemployment figure of 3.6 percent is impressive and sustained. Yet a cursory look at the data reveals warning signs. The broad unemployment figure does not factor in discouraged workers and those working part-time involuntarily. For example, adding those two groups to the unemployed, the figure jumps to seven percent.
Year-over-year payroll jobs growth — the annual percent increase in jobs — is below 1.4 percent: an eight-year low. The Economic Cycle Research Institute’s Leading Employment Index, which includes components ranging from labor market conditions to real estate and finance, recently recorded its worst reading since the 2008 financial crisis. The Index is designed to predict trends in job growth. Drilling down further, more softenness in the markets emerge:
- Wages: With record-low unemployment, 102 straight months of job growth, 121 straight months of GDP growth, etc., we should expect the labor market to tighten, putting upward pressure on wages. That hasn’t happened. From 2018 to 2019, average hourly wages grew by 3.2 percent. During the late 1990s and early 2000s, wage growth regularly topped four percent but is now concentrated in a few occupations and industries.
- Multiple Job Holders: The share of the workforce holding multiple jobs has decreased since the early 90s, but could be on the rise. In the early 90s, about six percent of workers had multiple jobs. Last year it stood at five percent. In 2019, that has increased to between 5.2 and 5.3 percent. While this is a small part of the workforce, it is telling that this number is increasing month-over-month for the first time in over 20 years.
- Productivity: Productivity measures the output of goods in services in an economy as a ratio of inputs (labor and capital). In recent years, the U.S. has seen a decrease in labor-generated productivity. Labor productivity rose an average of just over two percent for decades. In 2004, that year-to-year rate shrank to around 1.2 percent, and since 2011, it has been 0.6 percent.
- Labor’s share of national income is declining: That is, the share of GDP growth accruing to workers in the form of salary or benefits is getting smaller. The share of national income, or GDP, enjoyed by workers fell from 64.5 percent in 3Q1974 to 56.8 percent in 2Q2017. Productivity may be steady, but gains are not being passed down to workers. This is not merely academic; a declining labor share in the U.S. means more economic inequality. More worrisome is the fact that the labor share topline does not account for between-worker inequality — how wage stratification is occurring among workers.
- Rising Inequality Among Workers: Low-wage workers are not seeing even the meager gains enjoyed by their higher-earning counterparts, fueling income inequality. Since 2000, real wages have risen by three percent for workers in the bottom 10th percentile in terms of earnings, and 4.3 percent for workers in the bottom 25th percentile. Contrast this with workers in the top 10th percentile, who have seen a 15.7 percent increase in wages.
As we have detailed in a previous update, workers are migrating across sectors, away from heavily-unionized and stable manufacturing jobs and towards more precarious service sector and gig economy work. In doing so, they lose collective bargaining power and the ability to secure strong benefits, workplace protections, and higher wages.
Cracks in the Facade; Tale of Two Markets
Job growth and economic vitality is not spread evenly across the country. A McKinsey study identified 25 cities, comprising 30 percent of the U.S. population, that will boast roughly 60 percent of the future job growth through 2030. Meanwhile, in 512 U.S. counties (mostly rural), home to 20.3 million Americans, up to a quarter of all workers could be displaced over the same time frame.
And from 2012 to 2017, three-quarters of metropolitan areas experienced statistically significant job growth. But in 2017, that shrunk to 13 percent, and last year just 12 percent. Steller economic performance in a handful of cities is concealing deep problems in the labor market.
Median wage growth, rather than average, better captures the stagnant wage problem for the majority of Americans. Leading indicators of recessions like manufacturing output and employment, consumer and business confidence, and durable goods purchases are paramount. Many of these indicators are showing signs of distress. Viewing the labor market solely through a national lens is misleading and won’t help fix the problem of wage stagnation and declining worker power. A fuller picture is necessary and both parties need a convincing story to tell.