Although slightly lower than expectations, today’s job report should still give working families cause to be optimistic. But there remain clear reasons that this “Rodney Dangerfield” recovery is not getting any respect. Private sector payrolls grew by 171,000 jobs in April, marking a record seventy-three consecutive months in which private employers expanded their payrolls. The unemployment rate has been at 5.0 percent or below for seven consecutive months, the best streak since 2007. The biggest damper in the report was 362,000 workers dropping out of the labor market in April—breaking five consecutive months of increases in participation. The major collapse in labor force participation is one of the thorniest hangovers from the Great Recession. Despite this month’s downward tick, economic growth has been consistent enough to begin pulling prime age workers (ages 25–54) into the workforce, a group whose participation had been declining through last fall. For example, participation rates for prime age women (still significantly off from previous highs) have begun to gradually recover.
If you were only gauging the economy’s health from the rhetoric of the presidential campaign, you would think that the American worker is incredibly vulnerable. Even President Obama has complained that he is not getting his due for turning the economy around. Why the disconnect?
- Wages have not broken through. The payroll for non-supervisory and production workers (the 90 percent of the workforce that are not managers) is only growing at an annual rate of 2.5 percent. The strongest parts of the last two recoveries saw weekly paychecks grow by 4–5 percent per year. In other words, wage growth is not what Americans expect to see in truly good times. With consumer credit still restrained and home ownership on the decline, the vast majority of Americans who depend on their wages won’t embrace the recovery until they see more noticeable pick ups in their paychecks.
- Hours worked are still sub-par. A closer look at payroll’s data also indicates some of the more subtle ways in which the economy is disappointing working families. Weekly hours are down by about an hour per week from what we experienced during the last strong economic recovery (late 1990s), standing at 33.6 hours per week. While that might not seem like much, one hour less per week translates into about $1,100 per year in lost earnings for production and nonsupervisory workers. That’s a real loss for working families and a main reason that incomes are down compared to before the recession.
The shift away from manufacturing to service jobs has made it hard—especially for workers without four-year college degrees—to get a full week of work. In April, the average front line non-supervisory job in hotel, restaurant, and other hospitality jobs was just 25.0 hours per week; in retail stores, just 29.8 hours per week. While overall payroll growth has been in line with prior recoveries, the sectoral mix has been different. Compared to prior recessions, over performing sectors (trade, education, healthcare, and hospitality) have less well-paid, full-time jobs than under-performing sectors (manufacturing, information and professional services). As Century Foundation fellow Daniel Alpert has pointed out, 44 percent of all jobs created since 2010 have been in just four low-wage, low-hour sectors (retail, hospitality, social assistance, and administrative services). As more people are working it is not surprising that more restaurants and retail stores are opening—but the work is not a pathway to economic mobility. Not surprisingly, advocates from New Jersey to California are petitioning for new laws that require services employers to provide full-time hours.
What must happen for today’s recovery to become an expansion and get the respect that it deserves? Unfortunately, there is no “silver bullet” or simple answer. However, there are steps we can take in the right direction:
- First, we need policies that promote economic growth, such as the current accommodative monetary policy by the Federal Reserve. The longer we can extend the current trend in job growth, the greater chance the fruits of prosperity have of being broadly distributed.
- Second, the role of institutions such as organized labor need to reclaim the bargaining power that they lost. They can help to shift the nexus of power from employers to workers. Recent developments in the gig economy with Uber are an example of the importance of regulation and organizing.
- Third, since today’s pay and employment challenges have been worsening over the last several decades, we need major investments in what the United Nations calls human priorities. These investments will generate a rate of return that exceeds their costs including major human capital investments in education and training. Just as crucial are social capital investments like public infrastructure, social insurance programs like social security, and fair workplaces. The good news is that we have an opportunity to leverage a growing economy with changes that foster shared prosperity. With the election just a few months away, now is the time to start thinking about the shape of future investments.