The June Jobs Report: More Good News On The Economy

The June jobs report was damn good news. The 850,000 new jobs created was at the high end of what I imagined to be possible. There is a limit to how rapidly businesses can hire. It is easiest when it’s just a matter of recalling workers who are laid off. But the vast pool of people on temporary layoffs has dwindled. As I pointed out, the share of the unemployment due to temporary layoffs had fallen to a level that was normal for a recession. It was 19.0 percent in June, down from a peak of 77.9 percent last April.

We also are looking at a situation in which an extraordinarily large share of the unemployed are long-term unemployed (more than twenty-six weeks). Historically, it has been harder for this group of workers to find new jobs.

For these reasons, it didn’t seem likely that we could have the sort of million-plus monthly job growth that we saw last summer. In that context, adding 850,000 jobs in a month is probably about as good as we could hope for.

The strong job growth was associated with strong wage growth, especially for workers in lower-paying sectors. This is consistent with the hard-to-get-good help story that we are constantly hearing about in the business press. Of course, it is not really impossible in most cases to get more workers, restaurants added 195,000 jobs in June, employers just have to pay more money.

The story in the June data is that workers are getting pay increases, and this is especially the case for workers at the bottom of the wage ladder. The data from the Bureau of Labor Statistics’ establishment survey are not ideal for measuring wage growth for different groups (the Current Population Survey is much better, but the monthly and even quarterly data are very noisy) but we can get a general picture.

The data for the last year are somewhat skewed by composition effects (the lowest-paid workers lost their jobs, thereby raising average pay), but if we take the averages for the last two years, with most workers now rehired, the impact of composition changes is more limited. What we see is that average wage growth has been strong over this period, but it has been strongest for the lowest-paid workers.

(Click on image to enlarge)

Source: Bureau of Labor Statistics and author’s calculations.

As the chart shows, the average hourly wage for all workers increased at an average annual rate of 4.3 percent. If we look at the average for all production and non-supervisory workers, a category that excludes most higher-paid workers, the average annual increase has been 4.6 percent. It has been even higher in the industries with the lowest pay. Average annual increases in retail has been 5.8 percent, while in the category that includes hotel and restaurant workers it was 6.0 percent.   

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