Previously, economists had acknowledged the addition of new jobs and an overall decrease in America’s unemployment rate; however, some criticized the lack of wage growth, while others claimed raising the minimum wage would be “the death of common sense.”
Friday’s report, however, provides something for everyone. To begin with, USA Today reports that the average hourly earnings increased 8 cents to $24.75 an hour, an increase of 2.2 percent since last year. As said by Paul Ashworth, “Employment growth is clearly on fire and it’s beginning to put upward pressure on wage growth.” Which brings us to the second point: the increased wage growth and earnings were because “the minimum wage rose in 20 states,” which did not result in a subsequent decrease in employment.
Even what was considered ‘bad news’ in the report was not terrible — unemployment increased to 5.7 percent. However, economists have said that this increase was not due to higher wages but was because over 700,000 more people “jumped into” the civilian labor force in January. As a senior analyst at Moody’s told the L.A. Times, “The labor market is gaining momentum. Employers have strong enough demand for their products and services that they really have to start ramping up their hiring.”
Still, it is promising to see an increase in the number of people joining the labor force. As Gary Burless, Senior Fellow at the Brookings Institute explained, one of the most disappointing features of the recovery efforts thus far has been that the labor force participation rate has remained low. Forbes contributor Louis Efron echoed this sentiment when he wrote about the labor force participation rates in August 2014, and warned readers that the unemployment rate then was closer to 12.6 percent (instead of 6.2 percent) if one considers the number of people “marginally attached to the labor force” and those “employed part time for economic reasons.”
Still, in Burless’ article, he writes that as real wages improve, this will likely increase the participation rate of adult workers–and it’s possible he is right. The New York Times interviewed Frank Walsh, a former electrical worker who has been out of work and he told the reporter he would work for a restaurant, “but they’re only willing to pay $10 an hour…I’m 49 with two kids–$10 just isn’t going to cut it.” Essentially, as described in the Times, the availability of federal disability benefits, rise of the Internet (which decreases the isolation felt when unemployed) and decline of marriage has made it easier for people (particularly men) to live without working. Increasing wages might then incentivize people to search for work.
Of note, it is really the private sector driving the recovery of the US job market. Whereas this sector added 267,000 jobs in January, the federal government cut 10,000 positions. Furthermore, lower-paying private jobs (i.e. retailers, restaurants) have seen the greatest increase though construction, manufacturing and business have also seen large increases.
At this time, the latest jobs report has been positive enough that the Federal Reserve is considering raising interest rates as early as June. This might seem counterintuitive (for example, mortgage, car loan and credit card rates would go up); however, the Foundations for Living website has a wonderful analogy for why this isn’t so. Federal rates are like merry-go-rounds and the Fed is responsible for making sure the merry-go-round is not moving too slowly (in which the Fed decreases interest rates and borrowing is easier) or too quickly (in which interest rates go up and borrowing becomes harder). In this way, interest rates are carefully calibrated to avoid “boom and bust extremes.”
At this time, however, federal officials are still monitoring wage growth as a final indicator our our economy’s health. If things continue to improve, we might see an increase from our current “rock-bottom, short-term interest rates.”
(Photo courtesy of reynermedia)