Friday’s employment report for May confirmed that the economy is continuing its recovery from the shock of the pandemic. Although the headline figure of five hundred and fifty-nine thousand jobs gained fell a bit short of Wall Street projections, it was more than double the Labor Department’s previous report for job growth in April—two hundred and sixty-six thousand—a number so low that it shocked many economists when it was announced, this time last month. The official unemployment rate fell three-tenths of a point in May, to 5.8 per cent. That’s the lowest level since March, 2020, when the coronavirus shutdowns were just beginning.
Given the partisan rancor that now surrounds the monthly release of jobs figures, and almost everything else, it’s worth setting the current situation in context. A year ago, large parts of the country were still in shutdown mode, and the unemployment rate stood at 13.3 per cent. Back then, the consensus among economists was that the road back to normality for the U.S. economy would be a long and challenging one. When Federal Reserve policymakers met last June, their median forecast was that the unemployment rate would average 9.3 per cent in the final three months of 2020 and 6.5 per cent in the final three months of 2021. During the second half of last year, many businesses reopened, hiring rebounded much faster than expected, and the Fed’s forecasts turned out to be overly pessimistic. By December, the jobless rate had fallen to 6.7 per cent. In January of this year, it dipped below 6.3 per cent.
Around that time, some economic analysts, although not those at the Fed, flipped from pessimism to supercharged optimism. Giddy at the prospect of more vaccines being rolled out and Joe Biden’s $1.9-trillion American Rescue Plan kicking in, they looked ahead to monthly figures of more than a million new jobs, and a rapid return to full employment. So far, these predictions have also turned out to be incorrect. Since February, monthly jobs gains have averaged about five hundred and thirty thousand. The unemployment rate has continued to come down, but at a somewhat slower rate than it had previously.
This slackening in the rate of improvement has left Biden on the wrong side of the expectations game. Speaking shortly after the May figures were released, he said, “We have now created over two million jobs in total since I took office—more jobs than have ever been created in the first four months of any Presidency in modern history, triple the rate of my predecessor, eight times the rate of President Reagan.” Republicans couldn’t challenge anything in this statement. But that didn’t prevent Kevin Brady, the top G.O.P. member on the House Committee on Ways and Means, from claiming that Biden’s policies were holding back the economy. “People are not coming off the sidelines for jobs, even with record job openings,” he told reporters.
In delivering his policy indictment, Brady highlighted the Administration’s decision, as part of the rescue plan passed in March, to maintain until September a weekly supplement of three hundred dollars to unemployment benefits. Most economists agree that the supplements are having some influence on people’s decisions about whether to return to work. But they also point to other factors that are playing a role, including fear of contracting the virus, school closures, and a mismatch between the types of jobs and workers that are available. Figuring out the relative importance of these factors is tricky. A working paper from economists at the Federal Reserve Bank of San Francisco, which was published last month, suggested that the extra three hundred dollars a week had only “small effects.” On Friday, however, Biden’s aides seemed reluctant to make this argument. Asked whether the White House believed that the enhanced benefits were leading to less employment, Jen Psaki, the White House press secretary, said, “That’s a really difficult thing to analyze.” She also said that Republican governors “have every right” to cut back the benefits before September, as many of them are doing.
Even more strange, the White House failed to emphasize another especially newsworthy development confirmed by the jobs report: wages are rising at a rate not seen in years, and low-wage workers are benefitting the most. The details were spelled out by the economist Jason Furman, who headed the White House Council of Economic Advisers under Barack Obama. In a blog post written with Wilson Powell III, his colleague at Harvard’s Kennedy School, Furman pointed out that the adjusted wages for production workers and those in non-supervisory roles grew at an annual rate of 9.1 per cent in April and May, which is “faster than in any pre-pandemic two-month period since the early 1980s.” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote on Twitter that, in the low-wage hospitality-and-leisure sector, the annualized rate of wage growth over the past three months has been seventeen per cent. Between March and May, the average hourly wage for non-supervisory workers in this part of the economy rose from $15.26 to $15.87, according to the jobs report. There were also notable wage pickups in retail and in transportation and warehousing.
After decades of slow and unequal wage growth, these developments are very welcome. But Biden didn’t dwell on them. Neither did Cecilia Rouse, the chair of the Council of Economic Advisers, in her blog post about the jobs report. But these wage figures should be especially welcome to Biden, who has spoken repeatedly about the need to rebuild the economy from the ground up. “We want to get something economists call ‘full employment,’ ” he said at an event in Cleveland, last week. “Instead of workers competing with each other for jobs that are scarce, we want employees to compete with each other to attract work. We want the companies to compete to attract workers.” Right now, the U.S. is nowhere near full employment: the total number of jobs is still about 7.6 million below where it was in February of 2020. But, because of the scrambling effect that the pandemic and pandemic-era policies have had on the economy, the labor market is behaving as if workers were scarce, with businesses like bars and restaurants obliged to compete for their attention rather than the other way around. And the effects are plain: higher wages.
To be sure, this could just be temporary. In the months ahead, more schools will reopen, alleviating child-care concerns; the number of people who have been fully vaccinated, which is currently slightly more than half of the adult population, will rise; and the enhanced unemployment benefits will run out, even in Democratic-led states. Many more people may well return to the workforce and look for jobs. If they do, it will alleviate the current labor-supply issues, boost the monthly jobs figures, and hasten the moment at which total employment returns to its pre-pandemic peak. It could also tip the balance of power in the labor market back to employers, which could weaken, or possibly halt, the upward move in wages, at least for a time.
Even if that happens, though, the experience of the past few months will have demonstrated the potential advantages of maintaining a tight labor market, which gives workers the leverage that they need to obtain higher wages. As Biden stated in Cleveland, one of the goals of his ambitious economic proposals is to make this situation an enduring reality. “When it comes to the economy we’re building, rising wages aren’t a bug, they’re a feature,” he said. Insuring that they become a permanent feature of the U.S. economy won’t be easy, but it’s an eminently worthwhile goal. As the President continues his negotiations with Senate Republicans in the coming days about a possible compromise on infrastructure spending, he and his allies should be out there ballyhooing recent wage gains as a downpayment on what can be achieved in the future: a sustained period of strong job growth accompanied by strong wage growth. Now that would be something.
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