The US labor market might not be as strong as we think


There’s evidence that the US labor market is recovering: The number of jobs created has beat expectations, unemployment claims have steadily fallen, the unemployment rate is remarkably low, and the job-quitting rate is up. Private-sector jobs rose by 237,000 in August, the largest gain in the past five months.

Yet, ahead of the Bureau of Labor Statistics monthly jobs report tomorrow (Sept. 1), new evidence suggests that things are not quite so rosy. A recently published survey (SCE) from the Federal Reserve Bank of New York captures Americans’ work experiences—annual earnings, job satisfaction, and the share searching for employment. It also registers how they feel about their job prospects and what they expect for the future. Expectations are a key forecast of labor-market health—they influence whether disgruntled workers leave their jobs, the unemployed keep looking, and potential workers negotiate for better wages.

According to the survey, the near-term outlook for the labor market is deteriorating.

In the post-recession recovery, job seekers have steadily increased the lowest wage at which they’d accept a new job offer. And in the past six months or so, that number has fallen, on average, by almost $4,500. This indicates that workers are willing to sell their skills for less than they did two years ago. This couples with already stagnating wages and lower earnings.

All respondents, employed or otherwise, are asked their expectations about receiving one or more job offers. This measure is seasonal, peaking in the spring and summer. In November 2016, respondents felt they had, on average, a 25% likelihood of receiving at least one offer in the next four months. This year, confidence has fallen, even as American workers are quitting at higher rates.

These murky expectations come at a time when more workers, on average, are moving out of the labor force. In July of 2016, no more than 2.2% of those employed four months ago left the workforce, but by 2017 the total was closer to 5%. This is especially true for older (45 and older) and lower-income (under $60,000) workers, and women. In the past four months the fraction of working women exiting the workforce has jumped by more than 2%—in comparison, the percentage of men actually fell. These findings corroborate national trends—the US labor-force participation rate has dipped and stagnated in 2017. With a large aging population and steep costs of childcare, there are incentives for older workers and mothers to stay home.