What’s Up with Wages Down?

Last week I discussed the fact that while we saw a large increase in February ‘non-farm’ payrolls – more than 27% over consensus expectation, we saw a decline in ‘average hourly earning’.    Why?   Wouldn’t you expect average hourly wages to rise with such a large increase in payrolls and a 4.9% unemployment rate?

There are a number of reasons why this might occur.  In the press, many are suggesting job growth – while robust – is primarily in low-wage industries.  I enjoyed one headline, “Labor Demand is Rock Solid?  How Would you Like Your Pizza?”  Is it really that bad?  Are the ‘new jobs’ almost all in the low paying food services businesses?

Let’s take a look.  Here’s a recent chart from the BLS:

Note the industries where the economy added jobs in the past month…and past year.  The big winners in the prior 12 months:

• “Education and Health Services” +698,000
• “Professional and Business Services” +610,000
• “Health Care and Social Assistance” + 634,500
• “Health Care” + 480,900
• “Trade, Transportation & Utilities” + 470,000

Combined, almost 2.9 million new jobs.  Are they  all low paying?   Let’s take a look.  Here’s the most recent data from the BLS.  While it doesn’t line up perfectly, you get the gist:

Sure, “Leisure and Hospitality” is low paying – there’s your pizza guy – and so is retail.  But by and large, most of the newly created jobs are in higher paying occupations.   “Professional and Business Services” where we saw 610,000 new jobs, pays almost 30 bucks an hour.

My conclusion is wage growth is muted primarily due to other factors.  Probably the 62.9% “employment participation rate” and the fact that an “alternative measure of labor under utilization” that I follow closely – known as Table A-15, more specifically the measure of ‘U-6’ – remains above 10%.     More on this later.

Thanks for your interest!

• Terry Liebman