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US labor market – Real wage growth remains stable despite concerns that it has disappeared – William Mitchell – Modern Monetary Theory

Last Friday (October 6, 2023), the U.S. Bureau of Labor Statistics (BLS) released the latest labor market data— Employment Status Summary – September 2023 – Data showed that employment increased by 336,000 and the unemployment rate remained stable after rising 0.3 percentage points to 3.8% in August. Last month, when job growth slowed sharply and unemployment began to rise, I asked the question whether this marked a turning point. Given that the additional data resolves some of the uncertainty about last month’s data, my answer is, I don’t think so. Data for September 2023 show a very stable labor market – employment growth was above the average over the past nine months, but sufficient to keep pace with labor force growth. Both the participation rate and the employment-to-population ratio are constant. All signs of stability. But the troubling fact is that nominal wage growth has once again failed to translate into real wage growth for workers. The relatively modest real wage gains of the past few months have evaporated as inflation has fallen. The question that mainstream economists need to answer is why the sharp increase in interest rates has not seriously affected the performance of the labor market? I know why. But it’s not in their textbooks!

September 2023 Overview (seasonally adjusted):

  • Wage employment increased by 336,000 (up from 187,000 the previous month).
  • Total Labor Force Survey employment increased net by 86,000 (0.05%).
  • The labor force grew by a net 90,000 people (0.05%) – (as I suspected, last month’s increase was revised down sharply).
  • The participation rate held steady at 62.8%.
  • Total measured unemployment increased by 5,000 to 6,360,000, so employment growth was broadly in line with underlying population growth.
  • The official unemployment rate held steady at 3.8%.
  • The broad labor underutilization indicator (U6) fell by 0.1 percentage points to 7%.
  • The employment-to-population ratio remained unchanged at 60.4% (still well below the June 2020 peak of 61.2).

For those who are confused about the difference between wage (establishment) data and household survey data, you should read this blog post – U.S. labor market conditions are worrying – I explain the differences in detail.

Some months the difference is smaller, and some months the difference is larger.

Salary Employment Trends

The Bureau of Labor Statistics states:

Nonfarm employment increased by 336,000 in September, higher than the monthly average increase of 267,000 in the previous 12 months. In September, employment growth increased in leisure and hospitality; government; health care; professional, scientific and technical services; and social assistance…

The leisure and hospitality industry added 96,000 jobs in September, above the 61,000 monthly average in the previous 12 months. Employment in food services and drinking establishments…has returned to pre-pandemic levels in February 2020. Lodging employment… remains 217,000, or 10.3%, below February 2020 levels.

Government employment increased by 73,000 in September, above the monthly average of 47,000 over the past 12 months… Government employment was slightly below (-9,000) February 2020 levels.

The healthcare industry added 41,000 jobs in September, compared with the 53,000 monthly average for the previous 12 months…

Employment in professional, scientific and technical services rose by 29,000 in September, in line with the 27,000 average monthly gain in the previous 12 months.

Social assistance added 25,000 jobs in September, about the same as the 23,000 average monthly job gains in the previous 12 months…

Employment in the transportation and warehousing industry changed little in September…the net change for the year was little.

Employment in the information industry changed little in September…

Employment in other major industries was little changed this month…

All in all, despite some hiccups last month, there are still no signs of an impending recession.

The first graph shows monthly changes in wage employment (in thousands, expressed as a 3-month moving average to remove monthly noise). The red line is the annual average. Observations between March 2020 and March 2022 were excluded as outliers.

The average line (without excluding outliers) gives you an idea of ​​the extent of the economic slowdown in the two years before the COVID-19 outbreak.

The next graph shows the same data in a different way – in this case it shows the average monthly net change in wage employment (real) over the calendar years 2005 to 2023.

The red marks on the columns are the results for the current month.

Average monthly change – 2019-2023 (000s)

Year Average monthly employment change (000s)
2019 163
2020 -774
2021 606
2022 Chapter 399
2023 (present) 260

Labor Force Survey Data—Employment Growth Tracks Underlying Population Growth

Seasonally adjusted data for September 2023 shows:

1. The total number of total employment in the Labor Force Survey increased by 86,000 people (0.05%) – a small increase.

2. The labor force saw a substantial net increase of 90,000 people (0.05%).

3. The participation rate remains stable at 62.8%.

4. As a result (from an accounting perspective), total measured unemployment increased by 5,000 to 6,360,000 – so employment growth essentially matched underlying population growth.

5. The official unemployment rate held steady at 3.8%.

It remains to be seen whether changes in participation are a result of sampling bias. We’ll see if changes are made next month.

The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) from March 2020 to March 2022 that distort the current period relative to the pre-pandemic period Case.

The employment-to-population ratio is a good indicator of labor market strength because the denominator, population, is not particularly sensitive to cycles (unlike the labor force), so changes are relatively clear-cut.

The chart below shows U.S. employment from January 1950 to September 2023.

In September 2023, the ratio remained unchanged at 60.4%.

The peak in September 2020 before the outbreak was 61.1%.

Trends in unemployment and underutilization

The U.S. Bureau of Labor Statistics states:

Key labor market indicators from the household survey showed little or no change this month. The unemployment rate remained at 3.8% in September, and the number of unemployed people was basically unchanged at 6.4 million…

The number of long-term unemployed (unemployed for 27 weeks or more) was little changed in September at 1.2 million. The long-term unemployed account for 19.1% of all unemployed people…

The number of people working part-time for economic reasons was 4.1 million in September, little changed. These are people who would have preferred full-time employment but are working part-time due to reduced hours or the inability to find full-time employment.

So last month’s rise in the unemployment rate, largely the result of a spike in the labor force participation rate, appears to be an anomaly rather than part of a worsening trend.

The first chart shows the official unemployment rate since January 1994.

The official unemployment rate is narrow Measures of labor waste, which means strict comparisons with the 1960s, such as the tightness of the labor market, must take into account broader measures of labor underutilization.

The figure below shows the BLS metric U6, which is defined as:

Total unemployment plus all marginally dependent workers plus total employment held part-time for economic reasons as a percentage of all civilian labor force plus all marginally dependent workers.

As such, this is the broadest quantitative measure of labor underutilization published by the Bureau of Labor Statistics.

Before the COVID-19 outbreak, the proportion of U6 was 6.8% (January 2019).

In September 2023, the U6 index was 7%, a decrease of 0.1 percentage points.

How are wages growing in the United States?

The U.S. Bureau of Labor Statistics report states:

Average hourly earnings for all private nonfarm workers rose 7 cents, or 0.2%, to $33.88 in September. Average hourly earnings increased 4.2% over the past 12 months. Average hourly wages for private-sector production and non-managerial workers increased 6 cents, or 0.2 percent, to $29.06 in September.

So the salary breakthrough did not occur!

What’s more, real wages are falling again.

Newest – U.S. Bureau of Labor Statistics (BLS) Actual Earnings Summary – August 2023 (Published September 13, 2023) —Tell us:

On a seasonally adjusted basis, real average hourly earnings for all workers fell 0.5% from July to August… This result stems from a 0.2% increase in average hourly earnings, plus the Consumer Price Index (CPI) for all urban consumers -U).

Real average weekly earnings fell 0.1% from the previous quarter due to changes in real average hourly earnings and a 0.3% increase in the average workweek.

From August 2022 to August 2023, real average hourly earnings increased by 0.5% on a seasonally adjusted basis.

So even with mild inflation, nominal wage growth remains so low that real wage gains from previous months have been lost.

The table below shows the movement in nominal average hourly earnings (AHE) by industry and inflation-adjusted AHE by industry in September 2023 (note that we are using August CPI (the latest available data) Adjustment).

The slowdown in nominal wages affected most industries.

The chart below shows the annual growth rate of real average hourly earnings from 2008 to September 2023.

So the brief period of small real wage increases that followed the long period of real wage cuts appears to be over!

Another indicator that tells us whether the labor market is turning in favor of workers is the turnover rate.

The latest data from the U.S. Bureau of Labor Statistics (BLS)—— Job vacancies and labor mobility summary (Published October 3, 2023)—Indicates:

On the last working day of August, the number of job openings rose to 9.6 million… During the month, the number of hires and total separations were little changed, at 5.9 million and 5.7 million respectively. Among separations, resignations (3.6 million) and layoffs and layoffs (1.7 million) changed little. …

In August, the number of people quitting smoking did not change much, at 3.6 million, and the quitting rate remained unchanged at 2.3%.

Therefore, in August 2023, the dynamics of the U.S. labor market were quite stable.

in conclusion

Last month’s relatively poor performance does not appear to mark the beginning of a worsening trend.

In September 2023, the latest U.S. labor market data showed that the labor market was very stable—employment growth was higher than the average over the past nine months, but sufficient to keep pace with labor force growth.

Both the participation rate and the employment-to-population ratio are constant.

All signs of stability.

But the troubling fact is that nominal wage growth has once again failed to translate into real wage growth for workers. The relatively modest real wage gains of the past few months have evaporated as inflation has fallen.

That’s enough for today!

(c) Copyright 2023 William Mitchell. all rights reserved.

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