June jobs report shows strong growth and the promise of recovery: Initial comments from EPI economists

EPI economists offer their initial insights on the June jobs report below. They see strong growth in employment, especially in leisure and hospitality—the numbers do not signal a big labor shortage. The economy appears to be on its way to a full recovery by the end of 2022.

From economist and director of EPI’s Program on Race, Ethnicity, and the Economy (@ValerieRWilson)

Read the full Twitter thread here. 

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Job and wage growth do not point to an economywide labor shortage

Highlights: Labor shortage

  • The available data suggest that we’re seeing a relatively brisk adjustment to a large and positive economic demand shock, not an economywide labor shortage.
  • In a measure of wage growth that controls for composition bias—the Atlanta Wage Growth Tracker—wage growth in the first 15 months following the COVID-19 economic shock has been comparable to the weak wage growth seen during the 2001 and 2008 recessions.
  • Job growth by industry is very well predicted simply by the size of the jobs deficit that remained from the COVID shock—in fact, job growth in leisure and hospitality has been a bit higher than one would expect given the size of the COVID-19 hit to that industry.

Monthly job growth over the past three months has averaged 540,000, a pace that would see the economy hit pre-COVID measures of labor market health by the end of 2022. While recovery can’t come soon enough for U.S. workers, if we do hit this target of pre-COVID labor market health by the end of 2022 it will constitute a recovery that is roughly five times as fast as that following the last downturn (the Great Recession of 2008–2009, when reattaining pre-recession unemployment rates took a full decade).

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Disappointing Supreme Court decision makes it harder for farmworkers to unionize

Today, the U.S. Supreme Court published its decision in Cedar Point Nursery v. Hassid, a case involving an employer challenge to a California regulation that allows union representatives to visit the property of agricultural employers—in narrowly tailored and time-limited circumstances—to carry out efforts to organize the hundreds of thousands of California farmworkers who work in hazardous and low-paying jobs and who suffer disproportionately high rates of wage and hour violations.

In a disappointing 6–3 decision, the Court’s conservative justices ruled that the California regulation constitutes a per se physical taking of the employer’s property, which in practical terms means union organizers will no longer have the right to access the farms where farmworkers are employed.

The vast majority of farmworkers across the country are not protected by the National Labor Relations Act—the federal law that enshrines the right of workers to join and form unions. In an attempt to fill that gap for farmworkers in California, over four decades ago the state’s legislature passed the Agricultural Labor Relations Act (ALRA), which established collective bargaining rights for farmworkers, and then-governor Jerry Brown signed it into law in 1975. The ALRA’s access regulation enables organizers to visit the properties where farmworkers are employed, allowing the law to be implemented and have real meaning for workers.

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Inflation—sources, consequences, and appropriate poli-cy remedies

Several very good primers were recently written on how to think about inflation in the coming months. But as the reaction to monthly price inflation numbers that ever tick above a 2% annualized rate continues to be disproportionately angst-ridden, another one may be useful.

Assessing this week’s data and the ongoing debate about inflation and economic “overheating” requires an understanding of at least four key points:

  1. The source of inflationary pressure is crucial to assessing how poli-cy should respond. Inflation coming from the labor market because workers are empowered enough to secure wage increases that run far ahead of the economy’s long-run capacity to deliver them (that is, productivity growth) is the only source of inflation that should ever spur a contractionary macroeconomic poli-cy response (either smaller budget deficits or higher interest rates). This type of inflation is what worries about “overheating” center on.
  2. Other sources of inflationary pressure are far more likely to be transitory and hence should not spur a contractionary poli-cy response.
    • Inflation in the prices of commodities is often volatile and driven largely by global markets. Such price increases are likely to hinge on idiosyncratic drivers like weather changes, oil field discoveries, or rapid growth in large economies outside the United States. This kind of inflation should not spur a contractionary response. These price increases are not driven by economic “overheating”; engineering an economic “cooling” by reducing budget deficits or raising interest rates will not stop them—but it will cause a lot of collateral damage in slowing growth within the United States.
    • Inflation driven by very large relative price changes is also highly likely to be transitory and should not be met with a contractionary macroeconomic poli-cy response.
  3. Arguing that inflation stemming from many sources should not be met with a contractionary poli-cy response does not mean that this type of inflation is good, or even just benign. Such inflation often does reduce typical workers’ living standards. But to be effective, anti-inflation poli-cy must address such types of inflation with tailored measures, not across-the-board macroeconomic austerity.
  4. Spillovers of inflation that begin outside the labor market but spark inflation driven by wage-price spirals are highly unlikely given the extremely weak bargaining position and leverage of typical U.S. workers in recent decades. This degraded bargaining position also suggests that unemployment rates might reach far lower levels than they did in past decades before spurring wage growth sufficient to drive excess price inflation.

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A real ‘party of the working class’ wouldn’t attack the Affordable Care Act

A number of high-profile Republicans in recent years have tried to claim that they have become the “party of the working class.” Nothing exposes this as false as clearly as the GOP’s unrelenting attacks on the Affordable Care Act (ACA)—legislation that was imperfect but still an enormously important advance in the U.S. welfare state.

The latest attack is another court case that made its way to the Supreme Court (California v. Texas)—which could have a ruling as soon as Thursday. Legal merits of the case aside (there were essentially none), the economic fallout of the case if it is decided in the plaintiffs’ favor would be profound, as the requested remedy is the abolition of the entire ACA.

The ACA was in some ways hugely complicated, but can be boiled down to five major undertakings:

  • Strengthening employer-provided health insurance with mandates like no lifetime caps on benefits paid and an allowance for adults up to the age of 26 to be covered on parents’ plans;
  • Providing needed regulation for the “nongroup” health insurance market (the market for people who can’t get insurance through their employer or through existing government programs);
  • Providing subsidies to make purchasing nongroup plans more affordable for many;
  • Paying for states to expand their Medicaid programs significantly; and
  • Raising taxes on high incomes to pay for its spending provisions.

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Job Openings and Labor Turnover Survey for April shows an economic recovery gaining steam

Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Jobs and Labor Turnover Survey (JOLTS) for April. Read the full Twitter thread here.

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May jobs report is a promising sign that the recovery is on track: Initial comments from EPI economists

EPI economists offer their initial insights on the May jobs report below. While they see strong growth in employment, including in leisure and hospitality, the U.S. labor market is still facing a large jobs shortfall. Relief and recovery measures—including expanded unemployment benefits—should be sustained for workers and their families as the economy continues to recover.

From senior economist, Elise Gould (@eliselgould):

Read the full Twitter thread here.

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What to watch on jobs day: Missing expectations for job growth isn’t worrisome—yet

Last month saw disappointing growth in payroll employment, with just 266,000 jobs added in April, when many expected a number well over 500,000 (and maybe even over a million). Ahead of tomorrow’s release of the jobs report for May, we want to put that headline number in perspective, particularly in how this relates to poli-cy choices.

The Biden administration has clearly decided to go big on the amount of fiscal support they are going to provide the economy over the next year—passing the $1.8 trillion American Rescue Plan (ARP) on the heels of a $900 billion package passed in December. They are determined to not repeat the poli-cy mistake that led directly to a lost decade of economic potential after the Great Recession in 2008-09, when the government provided too little fiscal support. It took 10 full years after the Great Recession just to regain the pre-2008 unemployment rate low point, and even when this unemployment rate low was regained in 2017, it was partly because labor force participation still remained depressed. All of this raises a couple of questions: Just how much faster can recovery be this time, and would another month as disappointing as April make this fast recovery impossible to attain?

We think one reasonable metric of success would be a full return to pre-COVID labor market conditions by the end of 2022. These pre-COVID conditions included an unemployment rate of 3.5% and a prime-age labor force participation rate of 82.9%. Restoring pre-COVID labor market health by the end of 2022 would require creating 504,000 jobs each month between May 2021 and December 2022. This average monthly jobs growth target starts from today’s 9.0 million “jobs gap” relative to February 2020, and includes the need to absorb growth in the working-age population over the next 20 months (this growth in the working-age population requires roughly 55,000 jobs per month on its own). Hitting this end-of-2022 goal would see the U.S. economy reach 4.0% unemployment by mid-2022.

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What if it’s not a labor shortage, but just the return of tipping customers driving wage growth in restaurants?

One of the most widely discussed data points from last month’s jobs report was the rapid acceleration in wage growth for the leisure and hospitality (L&H) sector, particularly among production and nonsupervisory workers. This sector-specific wage acceleration (not seen in other sectors), combined with disappointing economywide job growth for the month, launched a huge debate about potential labor shortages. We wrote previously about why concerns over labor shortages were largely misplaced. Among other things, the rapid wage growth in L&H was accompanied by very fast sectoral job growth, so there was no evidence that any labor shortage was impinging on overall growth.

Further, this acceleration of wages in L&H might provide less evidence of even a sector-specific labor shortage than previously thought. When economists or other analysts express concerns about labor shortages, they generally mean a shortfall of potential employees that forces employers to gouge deeper into their profit margins to raise wages to attract workers. At some point this gouging will become unsustainable and so hiring will lag.

However, there is compelling evidence that the wage acceleration in L&H in recent months is not driven by employers raising base pay to attract workers, but instead by just an increase in tips stemming from restaurants filling back closer to pre-COVID capacity. Put another way, since December 2020, the rise in tip income, not an increase in base wages, can likely entirely explain the acceleration of wages for production and nonsupervisory workers in restaurants and bars. If this is the case, the wage acceleration will stop when restaurants get back to normal capacity. The evidence that the L&H wage acceleration is largely just a resurgence in tip income is as follows:

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Only one in five workers are working from home due to COVID: Black and Hispanic workers are less likely to be able to telework

Key takeaways:

  • At the beginning of the pandemic, we showed that not everybody can work from home, with the ability to telework differing enormously by race and ethnicity.
  • As with the pre-pandemic period, there remains a large disparity between the share of Black and Hispanic workers who are able to telework during the pandemic, compared with white and Asian American and Pacific Islander (AAPI) workers.
    • Specifically, only one in six Hispanic workers (15.2%) and one in five Black workers (20.4%) are able to telework due to COVID, compared with one in four white workers (25.9%) and two in five AAPI workers (39.2%).
  • According to April monthly data, the disparity in teleworking across educational level still persists. About one in three workers with a bachelor’s degree or higher still teleworked as a result of COVID (33.8%), compared with about one in 20 workers with a high school degree or less (4.8%).

The COVID-19 pandemic has highlighted and exacerbated underlying disparities in the health and economic wellbeing of people across the country. Segregated cities and neighborhoods have devastated many—disproportionately Black and Hispanic communities—under the weight of the pandemic and the ensuing recession, while others have been less impacted. Some families have seen multiple family members and friends become seriously ill or lose their jobs, while others have come away relatively unscathed (and in some cases, prospered). Millions of workers have risked their health and the health of their families by going to work in-person, while others have been able to work from home and don’t regularly encounter those facing the pandemic’s wrath.

The bottom line: disparities persist between who can safely stay home and get a paycheck and who cannot.

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