UPS & DOWNS

	November 5,1999
	Ray Suarez discusses the mercurial stock market and its effect on the job market.

RAY SUAREZ: To help us walk through the numbers, we are joined by Greg Jones, chief economist at Briefing.com, an online market analysis firm; and Jared Bernstein, an economist at the Economic Policy Institute, a research and policy organization. Greg Jones, you'd have to go back to January 1970 to find a lower monthly figure, and yet hourly wages budged barely up a penny. What do you read into the numbers? GREG JONES: That's the incredible story with these employment numbers and indeed with the employment numbers we've been seeing for the last several years now. We've seen very strong job growth. We've seen an unemployment rate, which has fallen well below levels that people in the past thought would prompt inflationary pressures, at least wage inflation. And we haven't seen it. As you noticed, the hourly earnings number only went up a penny and over the last year, earnings are up 3.6 percent, which is actually at the lower end of the recent rage. So, we're seeing strong job growth alongside very moderate earnings growth. And that's really the story here. And it's an excellent story on the economy and the markets. RAY SUAREZ: Well, how do you explain that? We have not only a tight job market but if you look at it another way, could you say people are not benefiting from the fact that things are pretty good. GREG JONES: Well, that's true to an extent. You have to keep in mind that the 3.6 percent increase that I just noted is a nominal number. It's not adjusted for inflation. And actually over the past several years we've seen inflation fall. So people's actual purchasing power has been rising, which is to say real wages have been on the rise. So workers are benefiting in that sense. There's also something else that is at play here. And that is, even while job growth has been strong, job losses have been very strong as well. There's been an incredible amount of churn in the job market. And what that is doing is creating insecurity on the part of workers in certain parts of the labor market. And I think some people are making the tradeoff of wages for job security. Certainly that's not the case in some of the hottest areas, say technology-oriented jobs. But I think there's a lot of, you know, older workers and management level jobs that are much less secure even though the unemployment rate is at 4.1 percent. RAY SUAREZ: Jared Bernstein, what do you find hiding in those big national figures? JARED BERNSTEIN: I agree with much of what Greg just said. The fact though that as he mentioned, the growth of wages has actually decelerated. Wages are growing more slowly this year than they were last year despite the fact that the labor market has tightened up. I think that's one of the big questions that economists are trying to answer right now. I think probably one of the best explanations has to do with, as Greg mentioned, a residual amount of employee insecurity. Remember in the early 90's we had large-scale layoffs that affected not only blue-collar workers, as is typically the case, but also white-collar workers as well. Middle management. Many of those workers lost jobs. Even though the labor market has tightened up considerably, residual insecurity is still playing a role. There is another factor. If we look at the quality of jobs that have been created recently in the recovery, we've seen a decline in manufacturing jobs. We've lost over half a million jobs from our manufacturing sector since that sector peaked in March of 1998. That's... those are good jobs for blue-collar workers that pay high wages, high fringes, typically unionized jobs. We've added many jobs in the service sector. That's where all the job growth has been. Now, service sector jobs cut a broad swath. We have very high quality service sector jobs in terms of pay, lawyers, physicians and so on. We also have a great deal of low-end service sector jobs. I think there are two myths out there. One is that America only creates hamburger flipper jobs. That's wrong. The other is that America only creates computer programmer jobs. That's wrong, too. In fact, most recent numbers have suggested we've been creating jobs a little bit more quickly at the bottom end of the service sector. In fact, just this last month we had a pretty big spike in the number of temporary workers. Those jobs tend to be more insecure, pay lower wages, are less likely to be covered by fringes. So there is a job quality, a composition of the new jobs effect that is helping to dampen wage pressure. Now, as Greg mentioned, wages have been rising in real terms but for many workers that's come pretty late in the recovery. Only since about 1996 or so did we actually see real wage gains for middle and lower-wage workers. That's been a drag on family incomes. RAY SUAREZ: Well, Greg Jones, you mentioned earlier in your view, this is pretty good news. Earlier in this recovery when there were job numbers like this we could expect a 50 or 100 point plunge in the market. Markets responded robustly to this tight labor market. Why is that? GREG JONES: Well, they're not responding positively to the tight labor market. They're responding positively to the fact that the tight labor market continues to not be...to not put outward pressure on inflation, on wage inflation. So that was the real key to the market response today is the fact that we're really seeing what, for the stock market is a best of all possible worlds. You see a strong economy alongside very tame inflation. So that was the key to the market response today. RAY SUAREZ: But Jared Bernstein, along with the tame inflation, there are smaller or stable pay packets to pay for the things that these market leaders make and sell. JARED BERNSTEIN: I think this is one of the interesting kinds of controversies that comes up every first Friday of the month when the unemployment rate is released and we look at the financial markets. If wages are flat, the markets love it - a very ebullient stock market today. However, those wages are - represent, as Greg mentioned, workers' purchasing power. Now in an economy growing as quickly as ours, we very much expect the buying power, the incomes and the wages of middle and low-wage workers to be increasing. Unfortunately, over the past two decades there has been a very pronounced gap in the earnings, the income, particularly the wealth of working families at the top of the wealth scale versus those at the bottom. What we need more out of our economy, I think, is growth that's broadly shared, not simply a low unemployment rate but a low unemployment rate that's accompanied by commensurate wage gains that are shared by families throughout the wage and income distribution. In that sense, we would like to see wages perhaps growing a little bit more quickly. RAY SUAREZ: Greg Jones. GREG JONES: I think that's absolutely true. You can't argue with that. You can't argue with the fact that that is happening. We are moving to a more, as Jared mentioned, a service-based economy and a more knowledge-based economy. And as that happens, the skills and the knowledge-based workers are benefiting far more than say manufacturing workers. So we're seeing a real disparity in some parts of the labor market. RAY SUAREZ: Are the numbers telling us that people getting newly created jobs are those people in the least position to demand higher wages, at least at the outset, Greg? GREG JONES: Well, I think there are a lot of different things going on. To some extent you're seeing that. In some of the hottest areas of the labor market, namely technology, you're actually seeing people make a tradeoff of wages for stock options; they're taking a stake in the company rather than demanding the higher wages. So I think there are a couple of things going on helping to hold down wages, the insecurity issue that is affecting some older workers, and with the workers in the tightest areas, it's a decision to take stock options instead of wages which is helping. RAY SUAREZ: Greg Jones, Jared Bernstein, thanks so much. JARED BERNSTEIN: Thank you. GREG JONES: Thank you.