The U.S. economy is firing on all cylinders, with promising job growth and near all-time-low unemployment rates. This good news has been delivered in a steady stream of Bureau of Labor Statistics (BLS) monthly reports that provide a helpful snapshot of the economy and labor market. (We happen to provide convenient, geo-specific summaries of those monthly reports right here.)
However, if you want a more holistic understanding of America's employment picture, it's best to look beyond the BLS reports—or at least deeper within the reports.
A range of factors support the overall economic positivity, but there are also some key considerations that provide context—and at times, even warning signs—that, while encouraging, it's not quite all rainbows and butterflies. Here's a deeper dive into some of those key considerations that illustrate the whole story.
Mediocre Wage Growth
It seems logical that a hot job market should translate to higher wages for workers across hierarchies. Yet, the ripple effect to compensation has been slow. Fortunately, the BLS offered a sign that pay is trickling up. In August 2018, the average hourly earnings “of all employees on private nonfarm payrolls” was $27.23. This August, it was $28.11.
As the federal government weighs upcoming moves to keep the economy healthy—which has included raising interest rates to encourage investment spending—it has expressed concern over the pace of wage growth, especially considering inflation has also increased about 2.0% per year over the last few years. It's worth monitoring how much private and public companies continue to invest in (i.e. pay) their workforces after the Trump administration's corporate tax cut last year.
Questionable Labor Participation Rate
To fully grasp unemployment numbers, it's important to understand the impact of the labor participation rate. In simple terms, the participation rate captures the percentage of people who are eligible for work and are actively engaged in the workforce, whether that be working in some capacity (part-time, full-time, temp or perm) or looking for work. If there is an abrupt, relatively large influx of job-seeking talent—perhaps abandoning retirement, returning from maternity leave, etc.—the unemployment rate can actually briefly rise by a modest amount.
In the wake of the 2008-09 recession, participation rates declined significantly, as some workers simply gave up looking for a new job after months of rejection or zero response. Fast forward to today, and one ominous data point is the essentially flat labor force participation rate of "prime age" American workers (ages 25-54).
At roughly 63%, the labor force participation rate remains far higher than it's been for much of the past decade, but it's still significantly below the 81% mark it hit at the turn of this century. Many economists worry that a low participation rate can further exacerbate a shortage of skilled workers—creating an even tighter labor market.
Magnified Skills Mismatch
Despite dipping to near generational lows, many economists think the U.S. unemployment rate could be even lower were it not for the skills gap—or skills mismatch. A major challenge to continued job growth momentum is the shortage of workers to fill certain positions. Wharton School Professor Peter Cappelli made the argument that the skills gap is actually a skills mismatch where the worker has more or different education (and skills) than the employer requires.
To address this challenge, some employers are loosening their hiring requirements, and there's new focus on a range of efforts that could help workers acquire and strengthen specific skills required by employers. Apprentice programs, innovative job training efforts, and more colleges and trade schools offering micro-credentials are all aimed at mitigating the challenge.
Innovations like micro-credentials address this problem by giving businesses greater insight into an applicant's skills and abilities before they even graduate from higher education, a win-win for both parties.
Forgotten Marginally Attached
The "marginally attached" are individuals who are not in the labor force, but wanted and were available for work, and had looked for a job sometime in the prior 12 months. They are not counted as unemployed because they had not searched for work in the four weeks preceding the survey. In August, 1.5 million people were marginally attached to the labor force, little different from a year earlier.
Among the marginally attached, there were recently 368,000 "discouraged" workers, down roughly 25% from a year earlier. Discouraged workers do not look for work because they believe no jobs are available for them. The remaining one million people had not searched for work for reasons such as school attendance or family responsibilities.
Mixed Gig Economy
A persistent underlying theme to the strong job market has been the gig economy. And that it has left certain workers behind because they're forced to patch together part-time jobs as opposed to landing good-paying, full time jobs.
The number of people employed part-time for economic reasons (sometimes referred to as "involuntary part-time workers") is up to five million. Many of these individuals prefer full-time employment but are working part time gigs because their hours have been reduced or they're unable to find fitting full-time work.
On the flip side, the gig economy does offer flexibility for a sizable group of the workforce. Per Adecco's own research, roughly 10% of participants do it to fulfill a passion that their main job does not, and roughly 8% do it to develop other skills.
There is no doubt: Based on the low unemployment rate and an array of other labor market and productivity factors, the U.S. economy is healthier than it's been since pre-recession times. But everything is worth a deeper look. We hope this article—and the caveats in it—provided you with that deeper look. Because the more knowledge you have about the economy—the labor market—the more you can recognize and potentially capitalize on opportunities for your business, particularly your workforce.
Are today's employers ready for tomorrow's skills gap?
It might be time to start reimagining your job perks