Job Market Weak But Other Economic Indicators Appear Healthy
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JEFFREY BROWN: Reading the economic tea leaves is famously difficult, and what looks good on Main Street can go down poorly on Wall Street, and vice versa.
Today’s jobs report sent several signals for experts to mull over. The number of jobs created last month was the lowest in almost a year and well below what economists were projecting.
But the report also contained some revisions of note: There were 60,000 more jobs created in August than initially counted. And in a major revision of annual data, the government said that 810,000 more jobs were created between March 2005 and 2006 than originally thought.
Two former Labor Department chief economists offer their takes on the numbers. William Rodgers had the job during the Clinton administration from 2000 to 2001. He’s now a professor of economics at Rutgers University. Diana Furchtgott-Roth was with the Bush administration from 2003 to 2005. She’s now director of the Center for Employment Policy at the Hudson Institute.
William Rodgers, I’ll start with you. What do you see in today’s job numbers, in terms of job growth?
WILLIAM RODGERS, Former Chief Economist, Labor Department: Well, as you said, the number of new jobs over this last month came in well below what private-sector forecasters had anticipated, but also, Richard Friedman, my colleague from Harvard and I, we’ve been studying this labor market since the beginning of the recovery, as defined by the National Bureau of Economic Research, a nonpartisan think-tank out of Cambridge, Massachusetts.
And where they define the beginning of the recovery is November 2001. And when you do that, what you find is that we’ve only been averaging a little around 100,000 new jobs per month, clearly not enough to be able to absorb those people who have lost their jobs over the recovery.
Or in this past month, where we saw the unemployment rate stay still, but what happened was, people were leaving the labor force because they were having difficulty finding jobs. Again, we need to have 150,000 new jobs, roughly, just to keep our heads above water.
And also, we need to be well above that to be able to absorb young minorities, young people who have graduated from college. And so, again, this report didn’t surprise me, because it’s consistent with the trends that we’ve seen since the beginning of this recovery.
And now my colleague from the Hudson Institute, she’s going to want to start writing history as beginning in January 2003, the beginning of the tax cuts. And even if you do that, you’re still looking at an average job growth per month of about 118,000 new jobs per month, again, well below what we need to really extend opportunity broadly throughout this society.
JEFFREY BROWN: All right. Well, let me go to her and see how she does put today's numbers. What do you see?
DIANA FURCHTGOTT-ROTH, Center for Employment Policy, Hudson Institute: Well, market expectations were for the creation of about 120,000 jobs. We got 51,000 new jobs from September, and we got 62,000 from backward revisions, for a total of 113,000. So we've created a good chunk of jobs.
And even more important, the unemployment rate fell from 4.7 to 4.6 percent, and 4.6 percent is a really low unemployment rate. So all in all, the labor market is looking very strong these days.
JEFFREY BROWN: What do you see, in terms of who's getting the jobs and what kind of jobs they are?
DIANA FURCHTGOTT-ROTH: Well, the job gains were all over. Construction employment hit a record high. There were more jobs created in financial services, education and health services, leisure and hospitality. The soft spot was manufacturing, but that's part of a long, international, long-term trend.
But the rest of the economy, the rest of the labor force looked pretty strong. And there were gains in high-wage jobs and gains in low-wage jobs, gains in high-skill jobs and low-skill jobs. So it was a very positive report.
JEFFREY BROWN: Let me just stay with you.
WILLIAM RODGERS: I disagree.
JEFFREY BROWN: OK, go ahead.
WILLIAM RODGERS: That if you look at this report -- and, again, let's take a long-term view -- you'll see that, in this report, construction was weak. I disagree. The construction numbers suggest continued deterioration, vis-a-vis the increases in the interest rates that have slowed down...
DIANA FURCHTGOTT-ROTH: But construction employment hit a record high.
WILLIAM RODGERS: Well, let's talk about growth, growth. As I said, we need not just positive growth, we need to have growth that's still in excess of 150,000 new jobs per month, because that's how fast the population is growing per month. And so just to absorb those people -- I mean, having 118,000, having 51,000 new jobs per month, I mean, that's not extending prosperity. And that's not a good record to run on, in terms of saying that these tax cuts really stimulated the labor market.
JEFFREY BROWN: OK, go ahead.
DIANA FURCHTGOTT-ROTH: You're telling me that here construction employment has hit a new record high, and you're telling me that construction employment is weak, when there are more Americans working in construction than ever before?
WILLIAM RODGERS: But, again, what I'm trying to describe to you is let's talk about the growth. Let's talk about growth patterns, what's been happening over the last year, a few years, or 2003, which you like to start out with, or my preferred nonpartisan beginning date of 2001...
Wage rate growth
JEFFREY BROWN: Let me bring in another question, which is the question of wage growth. And I'll start with you, Diana Furchtgott-Roth, because this is something people have worried a little bit about, whether wages are keeping up with the cost of living. What do you see in the numbers today?
DIANA FURCHTGOTT-ROTH: Well, we had a .2 of a percent increase, which is 4 percent increase in wages over the past year, and we can really see that wages are catching up. Maybe about a year ago, wage growth was slow, but wage growth is definitely picking up, so much so that some people are saying the Fed is concerned about the inflationary effect that wage growth is going to have. This is definitely good for workers.
WILLIAM RODGERS: Again, I disagree.
JEFFREY BROWN: Excuse me, excuse me, excuse me. Were you finished?
WILLIAM RODGERS: Sorry.
DIANA FURCHTGOTT-ROTH: Yes, that's fine. That's fine.
JEFFREY BROWN: Professor, go ahead.
WILLIAM RODGERS: Again, I'm looking at the same report. And if you look at real -- if you look at inflation-adjusted hourly wages -- that is, taking into account cost of living increases -- real wages since January of this year have been stagnant. They've been stagnant.
And also, this 4 percent year-over increase that my colleague is talking about, inflation is probably going to -- over this year, is probably going to be at around 3.5, 3.8 percent. So the fact that, you know, we're seeing nominal wage growth occurring, you know, to cite that as gains going to Americans, but not taking out the cost of living, I find that very problematic analysis.
JEFFREY BROWN: Your point is that it's more than nominal, that it is steady growth, and, therefore, keeping up with the cost of living?
WILLIAM RODGERS: Well, the Americans...
JEFFREY BROWN: No, excuse me. Excuse me. I was asking her.
DIANA FURCHTGOTT-ROTH: Right now, wages are above the inflation rate. They are growing above the inflation rate. And more importantly, early compensation (ph) says, which isn't just wages but benefits, are growing even more strongly, because these days Americans have their compensation package in terms of wages. They have health benefits. They have pensions. Some of them have stock options.
So we can't just look at the wage. We have to look at the total compensation package, and that's definitely rising faster than the cost of inflation.
Value based compensation
JEFFREY BROWN: Another way of asking this is the question of income inequality. I know the two of you have looked at this before. Professor Rodgers, do you see the gap widening between top and bottom?
WILLIAM RODGERS: Before I answer that, real quickly, let's remind ourselves, when we talk about compensation and include benefits, yes, if you want to talk about the value, but you also have to talk about who's got those benefits.
And if you look over this period of time -- some work that, again, my colleague, Richard Friedman, and I have done -- we've shown that, particularly amongst older workers, low-income workers, and even more broadly other workers, coverage actually has fallen over the last few years. So the fact that values are maybe going up, the values are going up to a particular set of people.
Now, broaden to your question about income inequality, this is the first recovery that we've seen poverty rates rise in America. Typically, as a booming economy emerges, job creation grows, you get a trickle-down effect. We're not seeing that. The tax cuts of 2001, 2003, again, they helped to return to growing wage inequality that we had got nipped in the bud in the late 1990s, and so we have been -- we have seen a resurgence of inequality growth in our society.
Gap between rich and poor
JEFFREY BROWN: What's your response to that?
DIANA FURCHTGOTT-ROTH: Well, the property figures that came out last August shows that the poverty rate has stabilized, but these factors just are not applicable to the average American. I mean, there are people who are doing better. There are people who are doing worse. And we need to figure out how to help the people who are doing worse.
What we've seen is an increase in the returns to skill. We find the more highly educated are doing better, and those who are less highly educated are not doing so well. That's why, today's -- in a way, today's unemployment report showed that those without high school diploma, unemployment rate for people who don't even have a high school diploma, has fallen from 8.2 percent a year ago to 6.4 percent today. So these people are benefiting a lot more, the unskilled, from the current job market.
But what's important is we focus on the reasons that they're not getting ahead further, and that's education. We need to improve education. We need to make sure they get their high school diplomas.
The unemployment rate for people with a high school diploma is 4.2 percent, under the average. If someone just gets a high school diploma, they have a lower unemployment rate than average. And if they go ahead and get some community college or a B.A., they do great.
JEFFREY BROWN: All right, well, I'm afraid we're going to have to leave it there. As we said, mixed signals and different ways of looking at it all. Diana Furchtgott-Roth and William Rodgers, thank you very much.
WILLIAM RODGERS: My pleasure.
DIANA FURCHTGOTT-ROTH: Thanks very much.