What can you actually learn from the monthly unemployment number?
The U.S. unemployment rate crawled up to 4.4 percent in June, something many economists pointed to as a positive sign that more people are rejoining the workforce. But what can you actually glean from the monthly unemployment number?
Frankly, not much. It comes from a modest sample of 60,000 American households, out of a total of more than 100 million households, so it is bound to swing significantly from month to month. In other words, the monthly number that makes the headlines is a statistical artifact, a fact reinforced by the monthly "revisions." In the report released today, for instance, the Bureau of Labor Statistics notably and upwardly adjusted the number of jobs supposedly added to the American economy over the past two months.
The real question, however, is simply this: What can you tell over the course of, say, a year from any one month's unemployment number? Here are my answers:
The unemployment rate is down noticeably, from 5.1 percent a year ago to 4.4 percent in June 2017, a drop of nearly one sixth. No question. And our own more inclusive U7, the immodestly entitled "Solman Scale," which includes both the unemployed and underemployed, is down from 11.68 percent to 10.68 over the past year, a decline of nearly one tenth. Not bad at all.
So what's not to like? As pointed out by tweeters left and right, the troubling number is the rise in wages — or, more accurately, the lack of a rise in wages that would be consistent with a low unemployment rate.
Over the past year, wages have risen about 2.3 percent. Subtract inflation, which has run at nearly 2 percent over the past 12 months, and you have almost no wage growth at all.
Not to worry, says Nariman Behravesh, chief economist at IHS Markit:
So, as we Brooklyn Dodger fans used to say in the 1950s after being walloped yet again by the New York Yankees: "Wait till next year."
But, writes Republican economist Douglas Holtz-Eakin, whom we've long turned to for conservative analysis: "The only weak a point in the payroll survey was the growth in average hourly earnings … When combined with flat average weekly hours, the foundations of income growth were fairly soft."
And economists who lean left were, albeit predictably, even more skeptical.
Betsey Stevenson, a former member of President Obama's Council of Economic Advisors, tweeted: "Employment growth is strong, unemployment is low, [and] yet there are few signs that the hunt for workers is causing employers to push up wages."
And her esteemed economist partner Justin Wolfers chimed in: "When you next hear an employer whining about labor shortages, remind them that they could try offering higher wages."
But if employers are not offering higher wages, there must be a reason. And the most obvious candidate is a mismatch between what job applicants bring to the table these days and what employers are willing — or are forced to — pay them.
Is a "reserved army of the unemployed" tamping down wages? Or are today's unemployed or underemployed simply lacking the skills that employers think they need? There's no way to tell. But the meta-story of U.S. income and wealth growth over that past 30 years or so is pretty clear: growing inequality. And if average wages aren't budging, that trend is bound to continue. As today's unemployment report suggests, they haven't budged in a year.