The US Is At Full Employment and All Is Good? Take Another Look

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Introduction

Trump:

“In just over two
years since the election, we have launched an unprecedented economic boom — a
boom that has rarely been seen before. There has been nothing like it…. Our
Economy is setting records on virtually every front – Probably the best our
country has ever done.”

The President and
his supporters claim that with the unemployment rate at 3.7%, the economy is
strong. Others say no, many are hurting. A closer look at the numbers suggests
there are real problems.

Key Metrics

Question: how does
wage growth compare with GDP growth? Lagging wage growth would suggest that
labor is not keeping up with other sectors of the economy. 

The Bureau of
Economic Analysis (BEA) collects data on GDP in constant dollar terms. And since
2007, The Bureau of Labor Statistics (BLS) has collected average weekly wage
rates in real terms for a large number of industries.

Since 2007, real GDP
has increased by 19.1%, or at a compound annual growth rate of 1.6%. Over that
same period, private sector real wages grew only 7.4% or at a 0.7% annual rate.
So wages are lagging.

Why is this
happening? My answer: entrepreneurs are regularly faced with deciding on
whether to hire workers or invest in labor-saving technologies. And as I have noted, they are increasingly choosing labor-saving
technologies.

So how is this
consistent with the US being at full employment? It appears the labor markets
have become soft. That is, workers are taking jobs that are overall far less
remunerative than jobs in the past. The days of working for the same company
for life with great fringe benefits are over. 

The Numbers

Table 1 provides data on the change in earnings and employment for the largest US sectors. There are several points worth noting. The table indicates that earnings have not grown as rapidly in any of these sectors as GDP has grown. In fact, earnings have fallen in the non-durable goods sector. Jobs are falling in the goods producing sector. Note the decline in construction and manufacturing jobs. Government jobs have grown but only slightly.

Table 1. – Earnings and Employment (in thous.), 2007 – 2018

Source: Bureau of Labor Statistics
 

Retail

The retail sector has been severely weakened by e-commerce. As noted in Table 2, department store employees has fallen by 27% while employment in “non-store retailers”/e-commerce sellers grew by 30% in the 2007-18 period.

Table 2. – Retail Trade: Earnings and Employment (in thous.)

Source: Bureau of Labor Statistics

Information

The changes taking place in the information sector are striking. Note the employment losses in the “paper” and radio industries and the dramatic increases in both software publishing and data processing. 

Table 3. – Information: Earnings and Employees (in thous.)s

The numbers presented above suggest weakness in many service industries. But as Table 4 suggests, the education and health sectors continue strong. In both sectors employment is growing rapidly. The BLS did not collect data on education earnings but the National Education Association, the largest teachers union in the country estimates weekly earnings in education at $877.

Table 4. – Education and Health Care: Earnings and Employees (in thous.)

Source: Bureau of Labor Statistics

Other Sectors

Table 5 lists sectors with the greatest employments gains and losses since 2007. It is notable that in the sectors with the greatest employment growth, wages are low and not growing. Leisure/hospitality is an exception but wages are low in this sector. The growth in management consulting is probably a reflection of hiring part time rather than full time managers.

Table 5. – Rapidly Growing and Declining Sectors: Earnings and Employees (in thous.)

Source: Bureau of Labor Statistics

Conclusions

The aggregate
numbers normally relied on to judge economic performance look good. But to
understand what is really happening, one has to examine individual industries.
And there, serious problems are apparent.

Labor earnings are
not keeping pace with GDP growth. And within certain industries, there have
been large job losses. Labor saving automation is largely to blame as evidenced
by department stores where jobs are down 27% since 2007.

Manufacturing used
to be the “poster boy” for the effects of labor saving automation. But the data
above suggest that labor saving technologies are impacting the service
industries as well as the goods industries.   

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