What to watch on a work day: Job market strong, not overheating

On Friday, the Bureau of Labor Statistics (BLS) will publish the latest labor market data. Along with rising payroll employment and increasing labor force participation as workers enter or return to the labor market, I will continue to see nominal wages rise. While some have pointed to the rapid rise in nominal wages as a source of concern for the US economy, this is largely misplaced. Instead, nominal wage growth continues to dampen rather than amplify, inflationary pressures, and in recent months it has actually slowed down. And faster-than-pre-pandemic nominal wage growth has managed to provide a useful boost to hiring in sectors hardest hit by the pandemic shock.

Over the past year, in a welcome change, wage growth has been faster in the lower limit of the wage distributionas the labor market has improved and employers are trying to attract and retain the workers they need. At the same time, employment has skyrocketed as Congress problem-scale fiscal investment, and private sector employment is now within 1% of pre-pandemic levels. While some complain that any wage growth faster than before the pandemic is a sign of a devastating labor shortage that is holding back growth, this is not true. At the macroeconomic level, the economy continues to absorb new workers at historically high rates. And across industries, there is no evidence that rapid wage growth is holding back job growth.

Figure A below are changes in employment and wages over the last year compared to April 2022 compared to April 2021. The horizontal axis shows changes in wages over the last year, and the vertical axis shows changes in employment; the size of each bubble is proportional to the level of employment in each section, with larger bubbles representing larger sectors of the US economy. For many sectors, especially large ones, there appears to be a positive relationship between faster wage growth and faster employment growth, contradicting employers’ claims that they cannot find workers.

Allegations of labor shortages in the leisure and hospitality sectors, for example, do not appear to be dampening employment growth in the sector. Yes, employers have to work harder in this sector to attract and retain the workers they need. We see evidence of this in faster wage growth, especially faster wage growth through the fall of 2021. This growth has already begun to slow down. But an important point that seems to be missing from the conversation is that job growth in the leisure and hospitality industry has continued to be strong over the past year. While wage growth was in double digits, employment growth was the same. While the leisure and hospitality industry continues to experience the largest shortage of jobs, employment is now within 10% of its pre-pandemic levels and is steadily narrowing the gap each month. In short, pockets of wage growth in the US economy should not be feared, as they are accompanied by strong job growth. It’s hard to see the downside of both jobs and wages, which are rising at a faster pace after a deep recession.

High employment growth in sectors with faster wage growth: Annual changes in employment and wages, April 2021 to April 2022, by sector

Strong Employment Growth in Sectors with Faster Wage Growth: YoY Changes in Employment and Wages, April 2021 to April 2022, by Sector

Notes: The bubbles are proportional to the employment rate in each sector as of April 2022.

Source: EPI analysis of a series of publicly available Bureau of Labor Statistics data on current employment statistics.

The slight slowdown in wage growth in the leisure and hospitality sector in recent months has also been seen in the private sector as a whole. Figure B considers growth in nominal hourly wages in the private sector using three different time frames. First, in dark blue is the year-on-year increase in nominal wages, which shows that wages have risen by 5.5% over the past year. While this is still fast by historical standards, two other measures that look at what happened more recently illustrate some of the slowdown. The lightest blue line measures the monthly change from March 2022 to April 2022 year on year. While this line is the most volatile, it shows a clearly slower monthly wage growth rate of 3.8% yoy than the yoy. The third row illustrates the annual quarterly change in wages, the last point of comparison of the change in wages compared to the average for November 2021-January 2022 with the average for February-April 2022. Not only does this smooth out some of the data, but it also more clearly illustrates the slowdown compared to 2022.

In Friday’s Employment Report, I’ll be looking for more evidence of this slowdown, as well as more evidence that employers continue to increase their payrolls, even in sectors where employers complain the most about labor shortages.

Nominal wage growth in average hourly earnings for all workers across three dimensions: year on year, quarterly year on year, and month on year on year.

Change over the years Annual quarterly change Monthly change year on year
January 2019 3.3% 3.5% 1.8%
February 2019 3.6% 3.8% 4.4%
March 2019 3.5% 3.7% 4.4%
April 2019 3.3% 3.4% -0.9%
May-2019 3.3% 2.8% 3.1%
June 2019 3.4% 2.3% 3.9%
July 2019 3.4% 2.6% 3.9%
Aug-2019 3.4% 3.3% 4.4%
Sep-2019 3.1% 3.6% 0.9%
October 2019 3.2% 3.3% 3.5%
November 2019 3.4% 3.0% 5.2%
December 2019 2.9% 3.1% 0.8%
January 2020 3.0% 3.1% 2.6%
February 2020 3.1% 3.0% 5.6%
March 2020 3.6% 4.0% 10.1%
April 2020 8.0% 10.8% 64.5%
May-2020 6.7% 15.6% -11.4%
June 2020 5.1% 16.3% -13.3%
July 2020 4.9% 5.2% 2.1%
Aug-2020 4.8% -1.2% 2.9%
Sep-2020 4.8% -3.0% 1.2%
October 2020 4.6% 0.2% 0.8%
November 2020 4.6% 2.0% 5.0%
December 2020 5.5% 3.2% 11.5%
January 2021 5.3% 4.5% 0.4%
February 2021 5.2% 5.5% 4.5%
March 2021 4.4% 4.2% 0.8%
April 2021 0.6% 3.6% 5.7%
May-2021 2.2% 3.3% 6.5%
June 2021 4.0% 4.7% 6.5%
July 2021 4.3% 5.7% 6.1%
August 2021 4.3% 6.0% 3.6%
Sep-2021 4.8% 5.7% 6.4%
October 2021 5.4% 5.5% 7.6%
November 2021 5.3% 5.8% 4.7%
December 2021 4.9% 6.1% 5.9%
January 2022 5.4% 6.1% 7.1%
February 2022 5.2% 5.6% 1.5%
March 2022 5.6% 5.2% 5.8%
April 2022 5.5% 4.4% 3.8%
May-2022 5.2% 4.3% 3.8%
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