The U.S. labor market is tight, with national unemployment rates well below the 4% level commonly considered “full employment.” There is perhaps some modest slack, with millions unemployed and others working part-time when they’d rather be working full time.
Nonetheless, there are ample signs that even this limited supply of potential workers is diminishing in most markets and industries.
According to the U.S. Bureau of Labor Statistics, total nonfarm payroll employment rose by 128,000 in October, which was significantly more than most analysts were expecting but well below the pace of the past eight years. After upward revisions for August and September job gains have averaged 176,000 over the past three months.
Hiring was concentrated in food services and drinking places, social assistance, and financial activities. The General Motors strike dampened the numbers to some extent.
The unemployment rate remains about where it has been for months at 3.6%. The number of unemployed persons changed little in October and is less than 5.9 million, down from more than 6.1 million a year prior.
More than 2.3 million of these unemployed persons have recently entered or re-entered the job market, and many will be hired almost immediately.
The number of persons employed part time for economic reasons, meaning they would prefer to be working full time, is now about 4.4 million, down from 4.6 million last October.
One sign of tight markets is rising wages as companies pay more to attract and retain quality employees.
Over the past 12 months, average hourly earnings have increased by 3.0%, and wages and salaries have been increasing by a little less than 3% for the past couple of years.
Labor costs in some industries are rising even faster; construction wages are up 3.5% over the past year. In some geographic areas and some specialties, increases have been much more rapid.
Although the number of job openings has fallen slightly, it remains at about 7 million. In other words, there are far more jobs than there are unemployed people, even before accounting for the mismatches in skills and geographies. It’s a good problem to have, but it’s still a problem. The economy requires a certain number of extra workers to function efficiently, and there just aren’t very many of them.
There are signs the U.S. economy is slowing (though still growing), and the labor market may ease moderately as a result. At the same time, the shortage of workers is constraining growth in some areas and industries.
Over the long term, market solutions will emerge, from automation to artificial intelligence to improved immigration policies and job training initiatives. Until then, expect wages to continue to edge up as competition for workers remains intense.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.