By Thomas Cooley and Peter Rupert
The BLS establishment report showed a healthy 304,000 increase in payroll employment in January with 296,000 jobs added in the private sector. December employment was revised down by 90,000 jobs, from 312,000 to 222,000 while November revised up by 20,000, leaving a total downward revision of 70,000.
Employment in the goods producing sector rose 72,000 with 52,000 coming from construction employment.
Average weekly hours remained at 34.5 and average hourly earnings moved up slightly and have increased 3.2% year over year. Given the low levels of inflation this means that real hourly earnings have been increasing as well for the last several years. The very tight labor market is functioning as expected and wages are rising to draw more workers into employment.
The BLS annually revises their employment numbers:
In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs for March 2018. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which counts jobs covered by the Unemployment Insurance (UI) tax system.
The revisions did little to change the overall trend in employment. Adding the over-the-month changes results in an increase in 2018 of 2,674,000 new jobs.
The household survey shows an increase in the employment to population ratio, from 60.6 to 60.7. and an increase in the labor force participation rate from 63.1 to 63.2. There was an increase in the number of unemployed persons to 241,000. Overall, the unemployment rate increased from 3.86% to 4.00%.
Economic uncertainty has increased sharply in the past year. Trade wars, government shutdowns, economic slowdowns in Europe and China, nuclear threats and the rise of populist challenges to the “Davos World Order” have increased volatility in asset markets and driven much speculation about the onset of the next recession. In spite of all of this the U.S. labor market remains incredibly robust as it has been for the past ten years.
Nevertheless, the fact that wages have not risen faster has lead many progressives to focus on “fixes” for the labor market. The most popular is the minimum wage. Unfortunately, there are many misconceptions surrounding the apparent benefits from imposing a wage floor.
Minimum Wages
In a recent California on Your Mind|Analysis, politics and the economics of the Golden State, Lee Ohanian has written an excellent piece on minimum wages: Presidential Candidate Kamala Harris’s Minimum Wage And Education Policies Will Reduce Economic Opportunities. The upshot is that minimum wages can have dis-employment effects on those it is purporting to help.
First, the chart below shows who makes the minimum wage by occupation in the US.
Evidently 65% of those working in minimum wage jobs are in the services occupation, typically younger and lower educated workers. Recall that the majority of the 300,000+ jobs added in the past month were service sector job, as is true every month.
In California, as in other states, the minimum wage binds differentially across counties. A state minimum wage will have large effects on areas where many are working at or below the minimum wage.
What has and will be happening to the minimum wage? Minimum wages in California in real terms will rise by more than has ever occurred, close to doubling in real terms, reaching 15$ per hour in nominal terms in 2020.
As a sound bite, promoting a policy like minimum wages seems appealing. Who would not want to have higher wages? In reality, however, there are winners and losers as a new equilibrium in the market unfolds. And, more often than not, the losers are exactly the people the policy is supposed to help. Are there better alternatives? Of course, see the aforementioned article by Ohanian. They just don’t have the “sound bite” quality, namely, earned income tax credits.
