STATMENT: The Complacency Trap
STATMENT: The Complacency Trap
By Christian E. Weller
November brings another month in a long string of mediocre labor market performances. Job growth in November was only 94,000 jobs, after 170,000 new jobs were added in October, according to data released by the Bureau of Labor Statistics today. Yet some think these numbers give reason to celebrate since job creation was higher than expected—or at least greater than zero. By lowering expectations enough, clearly anyone could find a silver lining with sub par job growth.
The problem with such a long line of underwhelming news is that it allows people, particularly policy makers, to become complacent about workers. But it has been a long time since the labor market has turned in a strong performance, and we need to take the necessary steps to promote stronger long-term employment and wage growth. One way to do this would be expeditiously implementing the economic policy recommendations released last week by my colleagues at the Center for American Progress.
There have been six months with employment growth of less than 100,000 so far in 2007. November was one of them, and so was September after the BLS revised last month’s estimates downward by 52,000. None of the remaining five months in 2007 exceeded the long-term average employment growth of the previous business cycles—something that hasn’t been accomplished since March 2006 and has only happened in 10 months out of 80 in this business cycle, which started in March 2001.
The dismal growth this business cycle has resulted in an average annualized monthly job growth over the past 80 months of 0.7 percent, or about one-third of the long-term average job growth rate of previous business cycles. With the job market in the doldrums for such a long time, it is clear why analysts would celebrate when employment growth is better than the meager expectations predicted by economists.
But rather than laud meager improvements and stay complacent, we need to address the problems at hand. The job market needs serious attention, particularly in long-term problem areas such as manufacturing, and in new trouble spots such as construction. Manufacturing lost another 11,000 jobs in November, the 17th decline in a row, when it should be experiencing increases to match the resurgence in exports, of which the vast majority are manufactured goods.
Construction lost 24,000 jobs in November, mostly in residential construction. This was the fifth month of declining construction employment in a row, showing that the gains of 1,000 new jobs in non-residential construction in November were clearly not enough to compensate for the losses in the troubled housing market. Commercial construction has been one of the driving forces of economic growth this year, but the apparently strong commercial construction sales did not really contribute to strong job growth in this sector.
Regardless of whether it is manufacturing or construction, the story right now is the same. Strong and even strengthening growth in these areas does not automatically translate into solid job growth for
Troubles in the residential construction sector seem to have spilled over into other sectors, as well. Retail employment in building materials, for instance, fell by 3,500 jobs in November. What’s more, 20,000 jobs were lost in financial services, the fourth monthly loss in a row for a total of 59,000, the largest absolute four-month loss on record. Relative to the size of employment in this sector, this has been the largest four-month decline since the end of 1994, which means that it has far exceeded the losses related to the bursting of the dotcom bubble.
Offsetting these losses were gains in a few sectors that have emerged as perennial winners. Restaurants gained again, increasing employment by 16,900 jobs; health care added 14,900 jobs; and jobs in the government, especially at the local level, increased by 30,000. Yet these gains were clearly not enough to stop job growth from slowing.
For most of this year, weak job growth has also wrought slow and slowing wage growth, although November seems to have given workers some respite. Over the past 12 months, weekly earnings increased by 3.8 percent before accounting for inflation, compared to 4.2 percent in the previous 12 months. This comparison even includes the faster weekly earnings growth, 0.5 percent, in November than in the preceding few months when it hovered between 0.1 percent and 0.3 percent. Hourly earnings also grew by 3.8 percent compared to 3.9 percent in the preceding 12 months. Again, this slight slowdown still includes the accelerated wage growth in November when earnings increased by 0.5 percent instead of the 0.1 percent to 0.3 percent that were more typical of the preceding four months.
More importantly, wage growth in the prior 12 months was strong enough to give workers some gains above inflation: 3.3 percent for weekly earnings and 3.1 percent for hourly earnings. The opposite was the case between November 2006 and October 2007, the last month for which data are available. Inflation-adjusted weekly earnings dropped by 0.4 percent and inflation-adjusted hourly earnings fell by 0.5 percent from November 2006 to October 2007.
So far, workers have not equitably benefited from economic growth. Weekly inflation-adjusted earnings in October 2007 were 1.9 percent higher than those in March 2001 and hourly inflation-adjusted earnings were 2.7 percent larger. The jump in wages in November will likely mean that workers got a bump in inflation-adjusted wages, but it probably was not enough to erase the losses of the previous 11 months. All this is to say that policymakers need to implement ways to restrengthen the tie between economic growth and wage growth so that a rising tide can truly lift all boats.
The lesson to take away from today’s labor market figures, as well as all previous ones of this business cycle, is that economic growth alone will not translate into rising fortunes for