November 4, 2016 (Jobs Byte)

By Dean Baker

Workers are taking advantage of a tighter labor market, moving into better paying jobs.

The Labor Department reported the economy added 161,000 jobs in October. With modest upward revisions to the prior two months’ data, the average for the last three months is 176,000. The unemployment rate edged down to 4.9 percent, but the employment rate also edged down to 59.7 percent, as the household survey showed a small decline in both employment and labor force participation.

However the picture is much better for prime-age workers (ages 25–54). Their employment-to-population (EPOP) ratio rose 0.2 percentage points to 78.2 percent. This is the highest it has been in the recovery, although it is still 2.1 percentage points below the pre-recession peak and 3.7 percentage points below its 2000 peak.

It’s worth noting that the improvement in prime-age EPOPs occurred for both men and women. The EPOP for prime-age men is up by 4.6 percentage points from its trough in December of 2009. The EPOP for prime-age women is up by 2.9 percentage points from its recession trough in September of 2011, although women were much less hard hit by the downturn.

Using the 2000 peaks as the base of comparison, the EPOP for women is down by 3.3 percentage points while the EPOP for men is down by 4.5 percentage points. While the falloff has been larger for men than women, there have been sharp declines for both, indicating that the problem is the labor market, not the physical and/or psychological state of men.

Other data in the household survey were also positive. There were no major changes by demographic group, except for a 0.7 percentage point decline in the Hispanic unemployment rate. This mostly reversed a 0.8 percentage point increase from the previous month.

There was little change in the duration measures, with small declines in the average and median durations of unemployment, but a small increase in the percentage of the long-term unemployed. The share of unemployment due to voluntary quits rose 0.9 percentage points to 12.1 percent. This is the highest level for the recovery and comparable to the pre-recession rates, although still 3.1 percentage points below the 2000 peak.

The numbers of voluntary and involuntary part-time workers were little changed, although there has been a large shift from the latter to the former since the implementation of the ACA. Involuntary part-time has fallen 1,874,000 since December 2013, while voluntary part-time is up by 1,863,000.

Interestingly, recent growth has not especially favored more educated workers. Over the last year, employment rates for people with just a high school degree are up by 0.5 percentage points, while those with some college have seen a rise of 0.7 percentage points. By contrast, the EPOP for workers with college degrees has fallen by 0.1 percentage points.

Most of the data on the establishment side survey should be seen as positive, in spite of the somewhat slower pace of job growth. Wage growth appears to have accelerated modestly. The average hourly wage over the last three months increased at a 2.9 percent annual rate compared with its average over the prior three months. Over the last year, the average hourly wage is up 2.8 percent.

Wages vs ECI

Some of this wage growth does not indicate more rapid growth in compensation, but rather a shift from benefits (mostly health care) to wages. The employment cost index for the last year showed private sector wages rising 2.4 percent while benefits increased by just 1.8 percent.

More rapid wage growth is consistent with a story where workers are leaving low-paying jobs for better paying jobs. In this respect it is worth noting that lower paying industries were not sources of big job gains in October. Restaurants added just 9,900 jobs in October, compared with an average of 21,000 over the last year. The temp sector added 6,400 jobs. Retail actually lost 1,100 jobs in the month.

Health care, which is a mix of high wage and low wage jobs, added 30,500 jobs. The sector has averaged just 24,700 jobs a month since July, compared with 39,400 from July 2015 to July 2016. Manufacturing lost 9,000 jobs in October, it is now down 53,000 over the last year.

This jobs report provides solid evidence that the labor market is improving for most of the labor force. Workers are taking advantage of a tighter labor market to move into better paying jobs.