What the monthly jobs report can — and can’t — tell us about the labor market
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What the monthly jobs report can — and can’t — tell us about the labor market
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Listener John Bowen from Kansas City asks:
I hear jobs reports, but we never get any details. Are these minimum wage jobs? Where were the jobs located? If we lose millions of factory jobs in the Midwest but add a million minimum wage coffee shop jobs in Silicon Valley, how does that work out?
The U.S. Bureau of Labor Statistics releases its jobs report every month, with the number of jobs gained or lost making the headlines.
It gives us a bird’s eye view of the economy, showing us its overall health.
But while those flashy figures get the most attention, there are valid concerns about the types of jobs that are being added. “In theory, we could lose 1,000 high-paying jobs, but gain 2,000 low-paying jobs for a net gain of 1,000 new jobs,” our listener John Bowen pointed out.
Luckily, we do have a lot more data in that report on the Labor Department’s website, which is also known as The Employment Situation.
“The employment report gives us information from two totally different points of view. We have information in the employment report from what we call establishments, which is basically businesses. And so we have a lot of information from the business side. And that tells us how many net jobs were created in different industries — the construction industry, the finance industry, retail trade, wholesale trade, manufacturing and education,” said Wendy Edelberg, a senior fellow in economic studies at the Brookings Institution.
Then there’s the “household survey data” component of the report, where the Labor Department gleans information from individual people.
“That’s how we find out if individuals are looking for work and can’t find it, if they’re not looking for work or if they’re holding two jobs,” Edelberg said. This portion tells us the unemployment rate and the labor force participation rate, which are both broken down by race and gender.
While the jobs report doesn’t directly categorize jobs by whether they’re high-wage or low-wage, we can see the average hourly and weekly earnings of employees by industry in the establishment data.
“You can use the jobs report to get insight into the quality of jobs. And that’s because they not only report the headline number, they report the number by industry and they report average wages by industry,” said Peter Philips, an economics professor at the University of Utah. “So you can ask the question, ‘Were most of the jobs created in high-wage industries or low-wage industries?’”
What we can figure out from the jobs report
Philips said in the January jobs report, which showed that the U.S. economy added 517,000 jobs that month, the most jobs created were in the leisure and hospitality industry.
And this industry is the lowest paid out of all the different categories included in the Labor Department’s survey, according to Philips. In January, the average hourly earnings for leisure and hospitality stood at $20.78, while the total average was $33.03.
So here’s what Philips said you can claim: “In January, the industry that created the most jobs was a low-wage industry.”
And that might raise a concern, he said. Sure, we’re adding jobs, but they’re low-paying.
However, one caveat he added is that this industry had been losing jobs since the pandemic began due to shutdowns. “So as they try to crawl out of the hole that was dug for them, in the pandemic, their job growth is faster than other industries that weren’t hurt as bad,” he said.
He noted that leisure and hospitality is playing catch-up, so this monthly snapshot doesn’t mean that this industry will be the “growth engine” of the economy going forward.
Christopher Kayes, a management professor at the George Washington University School of Business, said that on an individual basis, some companies might lay off high-wage workers and replace them with low-wage workers. He explained there are various ways they can do this.
“Some industries, like banking, are notorious for weeding out lower performers each year by firing, say, 5% or 10% of the workforce, and then replacing these workers with recent college graduates, who are paid less,” Kayes said. He added that another way some companies end up replacing higher-wage workers with lower-wage workers is “by shutting down operations” in high-cost areas, such as the state of California or New York City, and then relocating to areas in the U.S. with a lower cost of living and lower wages.
Kayes bigger concern, though, is “that companies are not passing along their fair share of profits to employees.”
Positive headline numbers about the jobs report could obscure that we are gaining lower-wage jobs, while losing high-paying jobs in, say, the tech industry. Tech companies, which can be high paying, have been cutting tens of thousands of jobs in a series of high-profile layoffs since last year.
Peter Mueser, a chancellor’s professor of economics at the University of Missouri, noted that we could still consider some aspects of the jobs report positive in a situation like this. And he said that’s because those employees gaining lower-paying jobs are doing better than they were before.
What we can’t figure out from the jobs report
The monthly jobs report also doesn’t show where jobs are being added, but the Labor Department does release other data showing employment at the metro and state levels.
But Edelberg of the Brookings Institution said the state-by-state data “can be noisy,” with an event like bad weather affecting employment. That means, she added, that you should be careful with those figures and “not pay too much attention to any particular blip.”
And while the jobs report shows us hourly and weekly earnings, there are limitations. Edelberg said that early on in the pandemic, there was a massive drop in employment, followed by some job recovery. But jobs weren’t coming back in all industries.
“At the same time, the employment report was telling us that earnings looked pretty good,” Edelberg said.
But Edelberg said that looking more closely at the figures, you would learned that it was only capturing the earnings of the people who already had jobs (since the data are focused on who’s actually employed).
“If the people who still don’t have jobs … have lower average hourly compensation than the people who are left, then what the employment report is going to tell you is that average hourly compensation has gone up,” Edelberg said.
But Edelberg said we do have other indicators without issues like these. The Labor Department also releases what’s called the Employment Cost Index, which Edelberg said measures “the change in compensation for a particular job.”
But she said there is a trade-off, which is that it’s less timely than the monthly jobs report and comes out on a quarterly basis.
Another limitation of the jobs report is that while it can let us know about the quality of these jobs, Philips said they can’t tell us whether those jobs are generating certain benefits for employees.
“Is there health insurance coming with that job? Jobs report doesn’t tell you,” he said.
Philips said we know that the 517,000 jobs that were created in January came with legally required benefits, like Social Security, unemployment and workers’ compensation. But he noted that we don’t know whether those jobs came with employer-provided health insurance or employer-provided pensions.
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