Older Workers Report

The Unemployment Report: Low-Wage Job Recovery Continues

March 6, 2015

 by Rick McGahey, SCEPA Faculty Fellow

Rick McGaheyRead Rick's comments in today's International Business Times, "Unemployment Report: Six Years After The Great Recession, Are The Good Jobs Ever Coming Back?"

This morning's employment report for February continues the story of this recovery: job growth trending upward, but still lots of slack in the labor market, and no signs of inflationary pressure. Jobs are growing, but wages and hours are not, and many of the jobs are low-wage.

295,000 jobs were added in February, in line with the three-month average of 288,000. Over the past year, job growth has averaged 266,000 per month. The unemployment rate ticked down slightly to 5.5% from 5.7 in January; over the past year, the rate has fallen by 1.2%, so we are seeing an improving labor market. But the labor force participation rate remained essentially unchanged, and is stuck at its lowest level in 37 years.

Wages and hours also remain flat, tempering any interpretation that we have a booming labor market. Average hourly wages were up by three cents, and have only risen by 2% in the past year. And average hours worked also remained flat—in February 2015 hours were 34.6, only two-tenths more than one year ago.

So we are seeing some job growth. But it isn't very strong, and the jobs aren't very good. Labor force participation, wages, and hours all are signaling a labor market with a lot of slack, and no significant upward cost pressures. The Federal Reserve should not be considering raising interest rates when faced with these numbers.

The lack of wage growth is consistent with most of the job creation since the Great Recession, which hasn't led to increased wages. The Economic Policy Institute showed that real hourly wages in 2014 were stagnant or falling for almost all groups across the board. Even workers in the 90th percentile, the highest paid, saw their real wages decline in 2014 by seven-tenths of one percent.

This continues a longer-term trend; between 2007 and 2014, real hourly wages fell for the lowest 80% of the wage distribution, and the top 10% of wage earners only saw a miniscule 0.2%. At the end of 2014, usual weekly median real earnings for the entire workforce were down by 2.6% from their peak in the first quarter of 2009. 

These trends aren't surprising when we consider which jobs are growing. The National Employment Law Project (NELP) has been documenting how jobs created in the recovery are worse than the jobs lost in the Great Recession. Through 2013, NELP found that job creation was concentrated in retail sales, food services, cashiers, stock clerks, and maids and housekeepers, all low-wage sectors.

NELP found that four years into the recovery, three low-wage industries—food services, retail trade, and administrative services (often temporary help agencies)—accounted for 39% of the net private sector job growth after the recession. In January and February, those three sectors contributed 35% of the total job growth each month.

The continuing weak labor market must be addressed in two ways—by increasing aggregate demand through greater government borrowing and investment for job creation, and by changing labor market institutions so that work is better paid. On aggregate demand and government investment, Larry Summers has been arguing, "If a moment when we can borrow money in the long term at well below 2%, in a currency we print ourselves, is not the right time to fix Kennedy Airport, I don't know when that moment will ever come." 

And labor market institutions matter. Workers are not sharing productivity gains. Barry Bosworth at Brookings has documented that between 2005 and 2014, hourly wages only went up at 50% of the rate of overall productivity growth, compared to 82% between 1994 and 2005. 

Further evidence about policy's importance comes from looking at stagnant wage growth in 2014. EPI reported that real wages grew by 1.3% (still an anemic level) for the bottom decile of workers, "because of minimum-wage increases in 2014 in states where 47.2% of U.S. workers reside." Of course, minimum wages have a long way to go to catch up to productivity gains. Economist John Schmitt has shown that "If the minimum wage had continued to move with average productivity after 1968, it would have reached $21.72 per hour in 2012." 

Washington politics today block any change of improved labor market institutions - not only a substantial minimum wage increase but re-empowering unions to increase worker voice and bargaining power. But without greater aggregate demand from government, and labor market institutions that redress the balance of power between workers and business (as my colleague David Howell recently pointed out), we will continue to see stagnant wage growth.