January Jobs Report: Wages up, workers down

Friday’s release by the Bureau of Labor and Statistics for the January Jobs Report was highly anticipated by nearly everyone -- including President Trump and his team. It was to be, for them, a vindication for his business friendly policies, and also to tag onto his key piece of legislation, the tax reform bill, but it was also eagerly anticipated by those that wanted to see one key piece of news: a wage increase.

The report did not disappoint -- it showed that the economy added 200,000 jobs, much more than the 180,000 anticipated, and the bonus was that average hourly wages increased to 2.9 percent, a welcome bump of 0.3percent from a figure that seemed on hold for several previous months at 2.5 percent.

This is a welcome change from the unwelcome images of income inequality that spilled from the media, and also led to political upheaval, even turmoil, said many.

Wages represent the real test of our economic strength and getting there, as we noted previously is half the battle and in earlier months there was optimism, when last month, it was noted by Business Insider that “Economists, however, remain optimistic that wage growth will accelerate with the labor market near full employment. The unemployment rate, which has declined by 0.7 percentage point since January, is now at its lowest level since December 2000 and below the Fed’s median forecast for 2017.”

Leading, or perhaps even lauding, the good news was economist Joseph Brusuelas who told Fortune Magazine that this would signal the “tightest labor market in a generation.”

The headline number remained at 4.1 percent, the lowest it has been since December 2000. The combination is likely, say observers, to lead to a March interest rate increase of a quarter-point, by the Federal Reserve, under the new chair Jay Powell. The usual disclaimer is still present: the headline, or marquee number, does not include those that want a job, but have given up, discouraged workers, or those that are not of working age; or those that want full time employment, but are stuck in part-time jobs; It does, by definition, include those that are simply unemployed and looking for work.

The good news is also that the discouraged worker rate has fallen by 15 percent in the last year.

While the champagne corks popped in many quarters, others were less sanguine, as they considered a Labor Force Participation Rate of 62.7 percent, that has been steady for four months, with seemingly no abatement to come. In 2000, the rate peaked at 67.3, but was depressed by long term joblessness, and the aforementioned discouraged workers.

The downward spiral has many reasons, and one is the continued opioid crisis, that has given the LFPR a 20 percent drop, say employers. Going further some have even said that the rate has been nibbled away by those that have claimed disability, often by jobseekers lacking relevant skills; and this was joined by the fact that Baby Boomers have retired at a steady clip, with younger workers filling the void, but not always, “shovel ready” as employers say that many of them lack the skills and education needed to perform.

To fill that void, some employers are lowering standards, including hiring those that test positive on marijuana, or lack requisite skills and need that “in-house” training, but mostly occurring in lower wage jobs. In fact, the largest increases were in bars and restaurant work, 31,000; health care (mostly lower-salaried aides) at 21,000; and manufacturing, of 15,000, welcome news, but most economists are taking a wait and see approach, as these numbers are subject to revision.

In a unique turnabout some employers are paying them increased wages after training them, and then, and only then, increasing wages giving employers an advantage, but simultaneously saving money.

Market Watch reported that “Dan North, chief economist at Euler Hermes North America, says a labor shortage has reached the critical stage.” He says that employers are “desperate for potential employees who have skills, or at the least, who can pass a drug test.”

“Companies are having to hiring unskilled people at unskilled wages, and train them. That’s part of the reason wages remain weak.," he emphasized.

While the White House seems to suggest that they have the wherewithal with this new bill to increase these overall numbers, some economists are saying this short-term boost from a deficit funded legislation is not enough, and that what is needed is an examination of the social causes of worker discouragement.