Wells Fargo Reports: Jobs: The Structural View—Progress But Barriers Remain

Wells_Fargo_Securities_logo Today’s employment report emphasizes the persistence of the structural barriers to adjustment in the labor market. These barriers are not exceptions, but are rooted in classic economic behavior.

Disconnect Between the Unemployment Rate and Job Openings

Contrary to the claims of some policy makers in prior years, the shift in the Beveridge curve (top graph) was not temporary but has persisted nearly five years into the labor market’s recovery, and for good reasons. The shift indicates that the efficiency of the labor market has deteriorated. Our view is that labor is less mobile, and employers are looking for skills that are increasingly job specific. Thereby, there remains a degree of skill mismatch as well as education shortfall in the labor market today. Especially in manufacturing, more jobs require advanced education and computer literacy. Manufacturing jobs are far less blue-collar today and more business casual. Construction jobs are far more multi-family and industrial and less single-family housing starts.

Part-Time for Economic Reasons: Improving But a Headwind

Workers employed part-time for economic reasons remains high relative to the past, but the gap is diminishing (middle graph). This pattern reflects the partial adjustment process to imperfect information that we have emphasized in many of our essays. From the employers’ point of view, the subpar economic recovery for the past five years has meant caution in hiring—especially for full-time workers. Slack work and business conditions remain the primary economic reason. Imperfect information on where the jobs are located and where qualified employees are located reflect the imperfect information factor on the part of both employer and unemployed. There is a definitive search process that has significant costs that produce the slow pattern of adjustment we see in the graph.

Expansion’s Shorter Workweek Hampers Weekly Earnings

The slow adjustment process that has kept the share of workers employed part time elevated presents another challenge to workers via weekly earnings. While much attention has been paid to the unimpressive gains in average hourly earnings in the current expansion, another key component of workers’ take-home pay—hours worked—has yet to recover. Average hours worked for all private sector employees looks to have topped out at 34.5 hours, slightly below its prerecession peak (bottom graph). The lack of recovery in average hours worked reflects the economy’s shift toward services, which employ a higher share of part time workers, and the shift away from goods production—particularly manufacturing—where workers are actually clocking in more hours per week than at any time in the post- WWII era.

A shorter workweek represents an additional challenge to household income and, in turn, consumer spending. Structural barriers are not a black box, but instead reflect fundamental economic forces that are rational but distinct from prior behavior.

Source: U.S. Department of Labor and Wells Fargo S1 2 3Source: U.S. Department of Labor and Wells Fargo Securities, LLC