Most economists expect the momentum to continue, although the further drop in the unemployment rate and the healthy increase in average hourly earnings may well stoke fears of inflation and, in turn, a more hawkish Fed.
Wages, Wages, Wages
Diane Swonk, an economist with Grant Thornton, said the great conundrum in the current economic environment was why wage growth had been so modest. After all, a tighter labor market should prompt employers to raise salaries to keep the workers they have and lure new ones, right?
In theory, yes, but in practice it hasn’t been working out that way — and everything from slow productivity growth to the decline of unions and digital disruption has been cited as a reason.
“This is the last shoe to drop in the labor market,” said Torsten Slok, chief international economist at Deutsche Bank. “It’s just a matter of time before wages start going up more strongly, but there’s frustration that it hasn’t happened yet, even though unemployment is the lowest it has been in almost 18 years.”
Besides the other potential causes, Mr. Slok has one of his own: While job switchers are being rewarded with raises, people who stay where they are not. Nearly 15 percent of what he calls “job stayers” saw no increase in wages in the past 12 months. At comparable periods in past economic cycles, that share was more like 10 percent.
“If you just stay around, you have less bargaining power,” Mr. Slok said.
Back From the Sidelines?
Although the proportion of Americans in the job market fell slightly in May, economists are looking for signs that workers who had given up on finding a job are gradually coming back. The labor participation rate was 62.7 percent last month, compared with 62.8 percent in April.
Sectors like construction, energy, transportation and hospitals have been especially tight, Ms. Swonk said, with some employers offering signing bonuses to lure workers. For evidence of the trend, she is watching teenage unemployment, which was 12.8 percent last month. In April, it stood at 12.9 percent, down from 14.7 percent in April 2017.
In some regions, labor markets have gotten especially tight, forcing companies to pony up to compete for workers. Union Pacific, the railroad giant, has long struggled to find mechanics, electricians and other skilled trade workers. But now it is having trouble filling even unskilled positions in some areas.
In Council Bluffs, Iowa, where the unemployment rate is under 3 percent, Union Pacific has started offering $20,000 in hiring incentives for train crews — a job requiring no experience or education beyond a high school diploma. In some cases, the company isn’t even waiting for students to graduate to start the recruiting process.
“We have communities where we work where the unemployment rate is a percent and a half,” said Lance Fritz, Union Pacific’s chairman and chief executive. “Finding people to do work there is mostly about getting them in high school and making them aware of the career path so that when they graduate and are in the work force, we get them.”
Turning to Trucking
When Chris Bogan was laid off last fall by Appleton Coated, a Wisconsin paper mill, he feared the worst. As his family’s main breadwinner, he was earning $28.66 per hour, a solidly middle-class wage in the Neenah, Wis., area, which The New York Times reported on in November.
As it turned out, tightness in one of the industries recently cited in the Fed’s Beige Book economic survey — trucking — came to Mr. Bogan’s rescue. The day the mill shut, he signed up for a course at Fox Valley Technical College to get a license to drive trucks. And the day after he graduated, he landed a job at a local trucking company.
“I didn’t wait around,” Mr. Bogan said. “I graduated on a Thursday night and went to the trucking company office on Friday morning.”
The demand for workers that he encountered is part of the larger economic picture in Wisconsin, which boasts one of the nation’s lowest unemployment rates. The jobless rate there stands at 2.8 percent, down from 3.3 percent a year ago.
Indeed, after the mill resumed production and Mr. Bogan got a call asking if he’d like to come back, he politely declined. Under a Teamsters union contract, Mr. Bogan’s employer covers all of the cost of his health insurance, so he’s essentially earning the same take-home pay as before.
“Things are going pretty well,” he said. “I love it. Instead of just watching that machine turning, I’m outside, and it’s different every day.”
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