The monthly jobs report was released Friday. What did we learn?
According to the report, the labor market rebounded in October in the wake of the hurricanes, and continues to be strong. Employers added 261,000 workers last month, and with the number of jobs added in September revised from a loss to a gain of 18,000, it represents a record 85th straight month of job growth since the great recession. There is more good news in the report as well. But there is one negative problem that stands out: wages remain stubbornly stagnant. U.S. workers simply are not getting the raises that the positive economic news would suggest are coming their way.
Let’s cover all of the good news, then discuss wages. What else was positive?
The unemployment rate continues to drop. In October, unemployment fell 0.1 percentage point to 4.1% in October, the lowest it has been since December 2000. While it was stubborn throughout 2016, the rate dropped dramatically from 4.8% at the start of this year. The unemployment rate that includes Americans who are underemployed or too discouraged to look for work fell to 7.9% in october. The last time it was lower was in 2001. As a result, new hires are harder to find, which should spur wage growth.
What did wage growth look like in this last report?
The Labor Department report showed that average hourly earnings were up 2.4% since this time last year. That is down from the 2.9% year-over-year growth rate reported in September, and significantly lower than the 3% to 3.5% annual wage growth we expect in a truly healthy economy. On top of that, when you look only at average hourly wages per month, rather than year over year comparisons, in October wages actually declined one cent to $26.53 after rising by 12 cents in September.
Now, we should take October with a grain of salt, considering the payroll impacts of the hurricanes on the service industry are partially responsible for this drop. However, the longer-term wage growth trend is certainly underperformance expectations.
What is responsible for this slow wage growth?
I think it is a combination of factors. For one, I think the gig economy and technology, and the related increase in part-time hourly workers in the economy, has scrambled some of the assumptions we used to make about the relationship between the unemployment rate and wage growth.
We continue to think of the wage environment over the long-term and slow-moving. One impact of the gig economy is that it no longer takes years to reset wage levels, or significant financial commitments to onboard working. Take Uber: the company’s technology resets its drivers’ wages automatically based on supply and demand. Technology allowed employers to adapt in real-time, and this has acted as a drag on wage growth.
Additionally, the contractor relationship that many tech companies like Uber or Task Rabbit use means that they can hire and get rid of employees without a large cost to them. Similarly, zero-hours contracts allow companies to fire and rehire entire warehouses at will. In some industries the potential for automation means that for many jobs, labor costs over a certain level simply are not financially worth it. Finally, new and discouraged workers continue to enter the work force together, these factors all slow wage growth.
Are there any signs that the wage story may change?
There are some signs that there is a little hope on the horizon. Labor market churn is on the rise, as people are more confident of their employment prospect and start looking for higher paying jobs. This could increase the pressure on employers to raise wages. In some states and cities, wage rates are benefiting from minimum wage hikes, which also pressure employers.
What remains to be seen is whether these forces are enough to counter the impacts of technology, automation and part-time employment. What is worth noting is that with the labor market so tight, if you are a full-time worker, now may be a good time to ask for a raise, or consider higher paying positions.
Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
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