November 03, 2021
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, November 5 at 8:30 AM Eastern Time.)
The rate of employment growth has slowed sharply in the last two months, averaging just 280,000 jobs a month. However, this is not a story of weak demand for labor. The index of aggregate weekly hours rose by 0.8 percent in September. This suggests that employers who were unable to hire more workers instead met their demand by increasing hours. The September increase in hours would be equivalent to adding 1.2 million workers if the average workweek had remained unchanged.
Other data are also consistent with continuing strength in the labor market. Wages are rising rapidly, especially for workers in low-paying sectors. We also see record rates for quits and job openings. In addition, the unemployment rate fell sharply in the last two months from 5.4 percent in July to 4.8 percent in September. The slower rate of job growth is at least as much a supply-side story as demand-side. Workers feel they can be choosier about their jobs for now, and they are looking for jobs with better pay and conditions rather than accepting the first job they can get.
Aggregate Hours Is Better Measure of Labor Demand than Employment
In a context where employers in many sectors are having trouble finding workers, the index of aggregate hours gives us a better measure of labor demand. Unfortunately, the month-to-month changes are erratic. The extraordinary 0.8 percent rise reported in September was undoubtedly, in part, a correction from the unchanged level reported in August. It makes sense to take a two or three month average to get something closer to the true pattern of labor demand.
Employment Growth in Restaurants, Hotels, and Arts and Entertainment
All three of these sectors were hit hard by the pandemic and still have far to go to recover their pre-pandemic levels of employment. Job growth in restaurants was especially weak in the last two months, as the sector actually added a total of just 4,300 jobs over this period. This was almost certainly largely a supply issue, as workers are looking for jobs that offer better pay and/or working conditions. The pandemic likely had little effect on employment over this period.
Employment in hotels rose by 15,700 (0.9 percent) in the last two months, while the category of arts, entertainment, and recreation added 92,300 jobs (4.5 percent). It is hard to imagine a story where the pandemic is seriously impeding demand for restaurants, but not affecting demand for hotels and live entertainment. In any case, with infections having fallen sharply, any impact of the pandemic will be considerably less in October.
Employment in Childcare, Nursing Homes, Home Health Care, and Other Low-Paying Sectors
Employment in childcare rose by 17,800 in September, but after two months of decline, it stands just 7,800 above its June level. The number of jobs in nursing homes fell by 15,800 in September; it has declined continuously throughout the recovery. Home health care added 8,200 jobs in September after three months of job losses, leaving employment just 2,700 above the May level. These sectors will have to offer better pay and conditions if they want to attract workers in a tight labor market.
Wage Growth
We have been seeing rapid wage growth in recent months, especially in low-paying sectors. The average hourly wage for production and nonsupervisory workers increased at a 6.7 percent annual rate comparing the last three months (July, August, September) with the prior three months (April, May, June). In the leisure and hospitality sector (primarily restaurants), the annual rate of wage growth over this period has been 18.1 percent. These are extraordinary wage gains, even recognizing that some of this is being eroded due to inflation. If the rapid pace of wage growth at the bottom end continues, it will mean a qualitative improvement in these jobs. In effect, a tight labor market will be raising the minimum wage.
Employment in State and Local Government Education
State and local governments reported a combined loss of 161,000 jobs in September. This is difficult to understand now that most schools are back to in-person instruction. To some extent, this may be due to difficulties in attracting workers, especially for low-paying non-teaching jobs, but it is likely also partially a fluke in the data. This sector is likely to show strong job growth in September.
Manufacturing and Construction Employment
The manufacturing sector added 26,000 jobs in September, following a gain of 31,000 in August. Construction added 22,000 jobs after a flat August. Both sectors are likely to show modest gains in September, with supply chain problems holding back production.
Self-Employed
The number of unincorporated self-employed has been well above the pre-pandemic level. The level fell by 123,000 in September, but still 619,000 (more than 6.0 percent) above the 2019 level. (There has been no clear trend in the incorporated self-employed.) This indicates that many workers saw the pandemic as an opportunity to start their own business.
Black Unemployment
The unemployment rate for Blacks fell by 0.9 percentage points in September to 7.9 percent. The rate for Black men over 20 was 8.0 percent and 7.3 percent for Black women. The unemployment rate for Blacks did not get this low following the Great Recession until January of 2017. These data are erratic, so given the sharp drop in September, it would not be surprising to see some increase in October even with no deterioration in the true state of the labor market for Black workers.
Long-Term Unemployment
The share of unemployment for people who are out of work for more than 26 weeks hit extraordinarily high levels in the pandemic recession, exceeded only by the peaks following the Great Recession. The share fell by 2.9 percentage points in September, but it still stood at 34.5 percent. A more typical level would be under 20 percent.
We are in the middle of a sorting process in the labor market. We still have a considerable way to go to get to pre-pandemic levels of employment, but this is largely a supply-side issue at this point, with workers looking for jobs with better pay and working conditions.
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