Employment on track to reach pre-recession peak this summer: Upjohn Institute economist Brad Hershbein on today's jobs report

Brad HershbeinPosted 11:30 a.m. Friday, July 7

Today’s job report for June 2017 marks a continuation of a steady, if modest, jobs recovery that began in February 2010. While it’s wise not to put too much emphasis on a single month’s report, it’s encouraging that job gains for April and May were revised up by 47,000, and the number for June, at 222,000, was both higher than expected and slightly higher than recent averages (3 month: 194,000; 12-month: 187,000). Looking over the longer term, sustained reason for optimism is that that the employment-population ratio for prime-aged Americans—the share of 25-54 year-olds with jobs—has continued to rise, reaching 78.5 percent in June 2017, up from a low of 74.8 percent in late 2010. Although this number—possibly the best overall single statistic in capturing the strength of the labor market—is still below its pre-recession peak of 80 percent, gains have occurred among other groups, particularly older workers (60+), as the large cohort of Baby Boomers reach their 60s.

Putting these factors together, the remaining slack in the labor market is rapidly closing, and we will likely return to an overall employment-population ratio, adjusted for changes in population aging, similar to the pre-recession peak by the end of the summer. This is important, because this slack is one of the major reasons we have seen relatively little wage growth. Once the remaining labor market slack disappears, there will be greater upward pressure on wages, and we could see annual wage growth of about 1.5 to 2.0 percent in inflation-adjusted terms, about twice the growth experienced in the past few years.

Even this wage growth has been uneven across occupations, though. Over the past five years, average annual hourly wage growth (adjusted for inflation) has been 0.8 percent overall, but 2.1 percent for science and social science workers, and 1.0 to 1.3 percent for legal occupations; artists, athletes, and entertainers; food workers; and agricultural workers. For community and social workers; office and administrative support workers; and installation, maintenance, and repair workers, annual real hourly wage growth has been zero or even negative over the same period.

Other things worth mentioning:

Employment gains have been especially strong among African-Americans and Hispanics.

  • For African-Americans, the employment-population ratio has risen from 56.4 to 58.0 percent over the past 12 months, and the unemployment rate has fallen from 8.8 to 7.2 percent (not seasonally adjusted)
  • For Hispanics, the e-pop ratio has risen from 62.1 to 63.1 percent over the past 12 months, and the unemployment rate has fallen from 6.0 to 4.9 percent (not seasonally adjusted)

They’ve also been stronger among less-educated Americans.

  • Over the past 12 months, the e-pop ratio has risen by 0.8 percentage points for high school graduates, and 0.5 percentage points for those without a high school credential
  • In contrast, e-pop ratios have ticked down for those with some college or more, and drops in the unemployment rate have been tiny.

Together, these trends imply that the recovery is reaching broad swaths of the population, although some regional differences still exist

While the jobs report supplies the number of job gains, there's little information on the quality or skill level of these jobs. In the near future, we'll introduce the New Hires Quality Index, which tracks the earnings power of new jobs for different groups of workers. Watch this site for details.

-- Brad Hershbein