Truth About Jobs Report And This Low Wage, Part-Time Economy

The Labor Department reported Friday that the U.S. economy added 248,000 jobs in the month of September, beating out economists’ forecasts of 215,000 jobs. The headline unemployment rate fell to 5.9 percent during the month, the lowest since July 2008. Wall Street expected it to hold steady at 6.1 percent. However, the labor force participation rate dropped to 62.7 percent, the lowest since February 1978. Economists forecast it to hold steady at 62.8 percent.

While 200k-plus monthly job creation is cause for optimism, economic policy-makers are focusing beyond the headline numbers, including the unemployment rate and the number of monthly jobs created. With so many Americans reporting poor economic conditions despite the positive news, experts are now looking more at hourly wages, labor force participation, average work weeks, and other indicators that offer a broader gauge of the health of labor markets.

The abysmal labor force participation rate isn’t the only concerning piece of data that paint a picture of a labor market that is fundamentally weak. The employment-population ratio, which is currently at 59 percent, is a measure that receives little attention. But, according to Keith Hall, the former head of the Bureau of Labor Statistics from 2008 – 2012, the number warrants significant concern.

“It’s lower than it was when the recession ended. I think that’s a remarkable statistic,” says Hall, who is now a senior research fellow at the Mercatus Center at George Mason University in Fairfax, Virginia. “This has been a very slow, very bad recovery,” he says. “And I think the numbers have really struggled as a result. In fact, I’ve been very disappointed in the coverage of the numbers.”

The employment-population ratio has been at 59.0 percent for the fourth consecutive month, but has only increased .3 percent since September of 2013, when it stood at 58.7 percent.

There were 698,000 discouraged workers — or, people who have given up looking for work because they do not believe they will or can find it — in the month of September alone. Another 2.2 million Americans were marginally attached to the labor force, which are persons who wanted and were available for work, and had looked for a job sometime in the prior 12 months. They are not counted among the unemployed because they were determined by the BLS to not have searched for work in the 4 weeks preceding the survey.

The U-6 rate, which is defined as the “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” stands at a more accurate 11.6 percent.

Federal Reserve Chair Janet Yellen has repeated cited a lack in wage growth as a cause for concern and a primary factor behind the Fed’s monetary policy, which currently consists of putting off interest rate increases and cutbacks to money-printing and bond-buying. Yellen said wage growth is an indicator the Fed is watching for signs labor markets are strengthening since the declining headline unemployment rate has a great deal to do with the number of people quitting on the American dream.

Average hourly earnings for all employees on private nonfarm payrolls fell by 1 cent to $24.53 in September. Wage growth has risen by just 2 percent year-over-year, which sadly, actually represents a slight improvement over prior months when the rate averaged around 1.5 percent. Even though it appears the long-term trend is headed in the right direction, it isn’t. It is still well below the 3 – 3.5 percent rate the Fed views as necessary to keep inflation at its desired 2 percent target rate, and wage growth to impact the purchasing power of working Americans.

The fundamental cause of wage stagnation is the poor quality of jobs created in the U.S. economy since the Great Recession ended. Part-time, low-paying jobs represent the vast majority of jobs created and that unfortunately didn’t change in September.

Approximately half of all jobs created in September came from the part-time, low-wage riddled sectors, including employment services (+34,000), retail trade (35,000), food and beverage (20,000), and leisure and hospitality (20,000). Totaling 109,000, there is little wonder why the number of involuntary part-time workers was unchanged again in September and stands at a sad 7.1 million Americans. These are able-bodied Americans who want full-time work, but cannot find an opportunity to do so.

The long-term share of jobs created held by these low-wage jobs is over 70 percent.

In economics, particularly with respect to the jobs market, the number of jobs isn’t the only piece of data that determines whether the American people are enjoying a strong economy. While the number of jobs created came in just under the 250,000 jobs needed to be created monthly in order to keep pace with population increases, for the first time in U.S. history the middle age and younger populations are looking at a far less prosperous future than the baby boomers looking ahead to retirement.

And that already bleak assessment assumes economics and economic policy occurs in a bubble, which of course it does not.

With the Federal Reserve paying such close attention to the factors discussed above, it should be reported how future monetary policy will inevitably impact the growing national debt, which currently sits just under $18 trillion and has the potential to erase the already weak gains in the labor market.

Minutes from the last meeting of the policy-making committee revealed a heated debate within the Fed over the timing and trajectory of rate hikes. Fed Chair Yellen, while acknowledging the incentive to keep wages low, says the “slack” in low wages must be tightened before raising interest rates, But inflation “hawks” argue that keeping rates low will invite runaway inflation and lead to asset bubbles. It is a debate in which every outcome seems to ensure the American worker becomes the loser.

Though wages are far too low, Yellen and others say wage growth must be modest due to the risks of inflationary pressure. When wages rise too quickly it can lead to runaway inflation, which becomes a vicious cycle. It will move on corporate profits eventually, and the cost of production thus final sale of goods will increase, quickly eroding the realized gains in Americans’ purchasing power.

Inflation “doves” argue that when rates increase it will increase borrowing costs for consumers, making it more expensive to get a mortgage or a car loan, or for small businesses to get a loan for expansion. On the other hand, hawks point to the fact that these economic events will happen regardless of the Fed’s policy, noting that increased rates will also raise the cost of borrowing for the government, which will soon find itself holding an unsustainable amount of debt if increases are not done slowly while progress is closely scrutinized.

Each worst-case scenario ends up hurting the worker the most, suggesting two positions that are falling woefully short of replacing shady monetary policy with sound regulatory and economic policies that would lead to more broad-based wealth creation.