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Brookings on Job Numbers

Employment Picture Brightens but Wage Gains Continue to Lag

Gary Burtless

Employers added 214,000 to their payrolls in October, close to the average rate of gain over the previous year. From February through October payrolls climbed an average of 238,000 a month. Despite the modest drop of job growth in October, the gains were considerably faster than the pace needed to bring the job market closer to full employment. Net employment gains of 70,000 to 90,000 a month are needed to keep up with the growth in the working-age population. As long as monthly job gains are higher, the nation makes progress toward reducing excess unemployment.

October was the 56th consecutive month in which private firms added to their payrolls. Disregarding monthly fluctuations, the annual growth rate in private payrolls has been remarkably stable over the past four years. Company payrolls have increased about 2.1% a year. The overall pace of job gains has improved in the past couple of years primarily because government payrolls have stopped shrinking and started to grow again. In the four years through December 2013 public sector payrolls shrank 628,000, or about 0.7% a year. So far in 2014 the number of government employees has increased 60,000, or about 0.3%. It is a trivial improvement to be sure, but it explains much of the pick-up in overall job growth in the past two years.

Manufacturing and construction payrolls continued to eke out small gains in October, but the lion’s share of employment growth, as usual, occurred in the service sector. Professional and business services employment has grown fairly steadily through the recovery, as has employment in the health care sector. Both sectors saw continued growth in October in line with their gains over the previous three years. Construction companies added 12,000 to their payrolls, slightly below the average rate of job gain in the past year. On a seasonally adjusted basis, construction firms have added to their payrolls every month this year. Viewed over a longer period, employment gains in construction are improving very gradually, though payrolls remain about one-fifth below their peak level in 2006 and 2007.

Employment gains reported in BLS’s household survey are much more erratic than the growth shown in the employer survey. In October the household survey showed a monthly employment increase of 683,000. Over the past 12 months the survey shows an employment gain of 3.8 million, or about 317,000 per month, a considerably bigger total than the payroll growth reported by employers. October’s employment gain produced another small improvement in the unemployment rate, which edged down 0.1% (to 5.8%). More significantly, the employment-to-population ratio of adults between 25 and 54 increased to 76.9%, its highest level since January 2009. The employment rate of 25-54 year-old adults has now increased 2.1 percentage points compared with its low point in 2009 and 2010. However, the prime-age employment rate remains about 3.0 percentage points below its pre-recession level.

The improvements in employment have not generated much improvement in the purchasing power of workers’ wages. The average hourly wage in October 2014 was 2.0% higher than it was 12 months earlier. This probably represents a small improvement in real hourly wages, but the gain is astonishingly small given the steady increase in employers’ appetite for workers. So far a gradually tightening job market has not produced much if any improvement in employees’ pay envelopes. Labor’s bargaining power remains feeble.

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