Tampa Bay Times
With lower-paying jobs in an ebb, wage figures mislead
In pre-COVID-19 times, arguably the most crucial component of the Labor Department’s monthly payrolls report for bond traders was growth in average hourly earnings. After all, higher wages suggest a tighter U.S. job market and the prospect of inflationary pressure building in the world’s largest economy.
The pandemic and its disparate impact on certain industries seemed to render wage data irrelevant. For instance, average hourly earnings jumped 8.2 percent in April 2020 relative to a year earlier, far and away the sharpest increase on record. But that was because lower-paid service workers lost their jobs and dropped out of the calculation. In last week’s report, which most analysts considered strong across the board, average hourly earnings declined month-overmonth for the first time since June. With so many workers displaced and local economies reopening at different speeds, it’s difficult to get a good read from these figures.
Or perhaps it requires looking only at a more comprehensive calculation. Tom Porcelli and Jacob Oubina at RBC Capital Markets flagged what’s known as the index of aggregate weekly payrolls, which they argue shows a fuller picture of the overall “wage pie” because it effectively incorporates average hourly earnings, average weekly hours worked and employment. By this measure, which Porcelli has favored for years, private sector workers now are taking home more money than they were as a group in February 2020, just before the onset of the pandemic.
This kind of fully formed V-shape might be commonplace when looking at stock market indexes, but it’s rather rare in the world of U.S. labor market data, which tends to show the recovery is woefully incomplete. Examples include the employment-to-population ratio and the labor force participation rate.
To be clear, the index of aggregate weekly payrolls doesn’t suggest the U.S. is anywhere close to the Federal Reserve’s vision of full employment. For one, it takes only a quick eyeballing of the data to see it remains below where it would have been had the previous pace of wage growth and employment continued linearly. Chair Jerome Powell has made clear that the central bank won’t declare victory until many more Americans return to the labor force, including those who took longer to find jobs during the last recovery. Its “broadbased and inclusive” criteria is why Wall Street economists are trying to forecast new variables that could influence the Fed, such as the Black unemployment rate.
However, the fact that overall private wages are higher than ever, even with the U.S. economy down some 9 million jobs, seems to raise the risk that inflation could be stronger than policymakers anticipate.
The Labor Department on Tuesday released its February Job Openings and Labor Turnover Survey, or JOLTS, which showed available positions in the U.S. reached a two-year high of 7.37 million. Yet businesses have said they’re struggling to find workers for these positions because of pandemic-related issues such as child care and health concerns.
As the U.S. enters a new economic era, it might be time to start scrutinizing wage data again. The numbers indicate that the overall decline in private workers’ income was remarkably short-lived — it took almost three years for a similar rebound after 2008. If this pace continues for the rest of the year, policy makers could very well reach their inflation targets sooner than expected, even if their labor-market goals remain a ways away.