March 4, 2005 (Jobs Byte)
Jobs Byte

Jobs Growth Up, But Wages Flat in February

March 4, 2005
By Dean Baker
The establishment survey showed employers adding 262,000 jobs in February, following three months of relatively weak growth. However, wages did not rise in February, providing fresh evidence of weakness in the labor market. The unemployment rate also ticked up by 0.2 percentage points to 5.4 percent, as employment fell slightly in the household survey.

The February gain brought the average pace of job growth over the last three months to 183,000. This pace is slightly faster than the rate needed to keep pace with the growth in the labor force, but it will not go far towards compensating for job loss and slow growth from 2001 to 2003.

The biggest jobs gains were in professional and business services (81,000), government (33,000), construction (30,000), retail trade (30,000) and restaurants (27,000). These five sectors accounted for almost 80 percent of the job growth in February. The growth in business services was led by a 30,300 rise in jobs in temporary employment. While this would ordinarily be seen as a harbinger of future job growth, it follows three weak months, so that the February employment level is only 28,000 higher than the October level. Retail employment shows a similar pattern, with the February level just 30,000 above the November level.

Manufacturing employment rose by 20,000 in February, reversing a decline of the same size in January. This was driven primarily by the ending of temporary layoffs in the auto industry, although new layoffs have just been announced. There clearly is no positive momentum in this sector, as the average workweek fell by 0.2 hours.

The lack of wage growth for the month is striking. Nominal wages have not been flat since December of 2003, when Alan Greenspan was still worried about deflation. With consumer inflation now running at or above 3.0 percent, workers are seeing substantial declines in their real wages. While the monthly wage data is erratic, the annualized rate of nominal wage growth over the last quarter is just 2.1 percent, down slightly from a 2.3 percent rate over the last year.

In addition to its implications for livings standards (workers are enjoying none of the gains of productivity growth), the drop in real wages also has substantial implications for the economy's near term-growth prospects. A 1.0 percent decline in real wages is equivalent to a loss of 1.4 million jobs in its effect on purchasing power. In other words, if wages continue their current pace of decline, the economy will have to generate 1.4 million jobs just to keep worker's purchasing power flat. It is difficult to sustain economic growth in this situation. Workers will only be able to increase consumption by either dipping into savings or borrowing.

Most of the data in the household survey is consistent with a generally weak labor market. The rise in the unemployment rate reported in February suggests that the 0.2 percentage point decline reported for January was an aberration. By demographic group, African Americans and Hispanics were hit hardest, with both seeing a 0.3 percentage point rise in their unemployment rates. The employment to population ration for African Americans fell to 56.5 percent, the lowest level since September of 1995.

Older workers continue to be the only group experiencing substantial employment gains, with employment by workers over age 55 rising by 152,000. Over the last year, workers over age 55 accounted for 918,000 of the 1,810,000 rise in employment shown in the household survey. Rising health care costs, coupled with 401(k)s that are still far below their pre-stock-market-crash peaks, seem to be the driving factor in record employment growth among older workers.

The February employment picture leaves the future strength of the economy in considerable doubt. While the job growth in the establishment survey is solid, it seems likely that much of the growth reflects seasonal timing factors, and is simply offsetting weak growth in prior months. Given the weakness in wage growth, the current rate of job growth is generating relatively little growth in workers' purchasing power. This is likely to show up in slowing consumption growth.

Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, D.C.
CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report.