Wells Fargo Securities Reports: The Quantity & Quality of Jobs Continues To Come Up Short

The private sector added 103,000 jobs in August, marking 30 consecutive monthly gains which have added4.6 million jobs. Many of these jobs have been in low-paying industries, which has restrained income growth.

Sluggish Job & Wage Growth Pushes Workers to the Sidelines

Private sector employers added 103,000 jobs in August, bringing the string of monthly increases to 30 months. Over this time period, businesses have added 4.6 million jobs, replacing just over half the private sector jobs lost during the recession. While the gains are clearly welcome, the quality has been somewhat suspect. Nearly 40 percent of the private sector jobs added since payrolls bottomed in February 2010 have been in retail trade, leisure and hospitality, temporary staffing and home health care, although these industries account for only 29 percent of jobs. While these industries employ workers at a wide variety of pay grades, weighted average hourly earnings for these four industries total just $15 an hour. Moreover, many of these jobs are part-time and carry only limited benefits.

The disproportionate share of jobs being created in historically low-paying industries may, in part, be due to the unusually large number of people that have been unemployed for long periods of time during the past few years. The median duration of unemployment has fallen from a peak of 25 weeks back in June 2010 to 18 weeks currently, while the average duration of unemployment has fallen from a peak of 40.9 weeks in November 2011 to 38.8 weeks currently. With many states’ extended unemployment benefit programs winding down, many of these long-term unemployed may now be taking jobs that they would not have considered in the past. Some may very well be working more than one job, which bolsters the nonfarm employment measures but does not lift the labor force participation rate or employment-population ratio. Others may have simply given up looking for work. The number of people not in the workforce that state they currently want a job rose by 403,000 in August. The increase not only reduces the size of the labor force but also distorts the unemployment rate, at least in regard to how it reflects on the overall health of the labor market.

Another way the preponderance of low paying jobs affects the economy is through wage growth. Average hourly earnings have risen just 1.7 percent over the past year and overall wages and salaries have risen just 3.5 percent. Those gains have not kept pace with inflation. When you add in all sources of income and account for taxes and inflation, take-home pay has risen just 1.3 percent over the past year and most of the recent improvement results from lower gasoline prices earlier this summer. The lack of real income growth is a major factor preventing the economy from achieving the escape velocity needed to break free from the 2 percent trajectory maintained over the past couple of years. This is one of the reasons why Ben Bernanke focused so much of his attention on the challenges that long-term joblessness presents to the U.S. economy at his Jackson Hole speech last week and would be the driving force behind any additional policy moves by the Fed.

Job Growth In Selected Low Wage Professions

Index, 100=Feb. 2010, Seasonally Adjusted

Labor Force Participation Rate

16 Years and Over, Seasonally Adjusted

Real Disposable Personal Income Per Capita

Year-over-Year Percent Change, Chained 2005 Dollars

Source: U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Securities, LLC

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