Markets and Economy
Why the Labor Market Looks So Promising
Headline unemployment is nearing a record low, and hidden labor market metrics show workers in a historically strong position as fall approaches.
- Unemployment and layoffs are nearing record lows.
- Hidden labor market metrics—including the makeup of the unemployed population and the distribution of job growth—signal strength.
- The return of full employment should help prove that high stock prices don’t depend on weak demand for labor.
Fall could be a banner season for the labor market, as unemployment approaches a historic low. It’s just one sign that demand for labor is strong, and the return of full employment means that almost everyone who wants a job is able to find one. In fact, approximately 7.2 million positions are currently going unfilled as businesses struggle to find skilled candidates to replace an outsized wave of retiring workers.
Other labor market indicators are equally heartening. The number of young adults working or actively looking for work has almost returned to its pre-recession peak. During the downturn, that number fell sharply as people who had been unemployed for a long time began to abandon their job search. The return of these discouraged workforce dropouts to the job market has increased the economy’s underlying potential and enabled above-trend growth to continue for years after headline unemployment dipped below the level historically associated with full employment.
The shifting composition of the unemployed population provides another positive sign. Only one-quarter of today’s unemployed workers are drawing unemployment insurance benefits, which implies that recently laid-off workers are able to find new jobs rapidly. The long-term unemployed population has also been shrinking—those who have been searching for work for more than six months now account for less than 1 percent of the workforce. Recent graduates appear to be making up a relatively large portion of the total unemployed population, which is a sign of a strong job market; workers with established skills are finding positions quickly, but those searching for their first jobs are taking longer.
Geographical Differences in Job Growth
The labor market’s strength is spread nearly evenly across the nation. Layoffs have fallen near pre-recession levels in every state except Texas and North Dakota, where slumping oil prices have led to a sharp cutback in drilling activity.
The historically low level of layoffs nationwide stands in stark contrast to the recession’s job losses, which were concentrated in interior states like Iowa and Utah. In the early years of the recovery, coastal cities created jobs more quickly than the rest of the country. But recently, job growth has accelerated in the heartland, bringing prosperity to more states.
Within individual states, however, job growth has varied tremendously. In Ohio, for example, total employment only recently exceeded the level seen at the turn of the century—falling far behind the nation’s 15 percent growth over the past two decades. But in Ohio’s most dynamic labor market, Columbus, employment has grown by 20 percent. This implies the labor market’s strength has been unevenly distributed across the state. Job creation has been robust in urban strongholds, but smaller cities and rural areas are lagging behind.
Equity and Labor Have a Strong Relationship
Finally, the inaccurate theory that stocks benefit when workers struggle is being proven false—stock market valuation and job market metrics are equally impressive. While many firms are capitalizing on advances in robotics and artificial intelligence to replace human labor, their profits don’t depend on a soft job market and slow wage growth. The tightening labor market will do little to reverse the trends in globalization and automation that are reshaping the economy.
A strong labor market means strong consumer demand, which could keep corporate revenues high. Competition for workers may push wages higher, but any damage to corporate profits from swelling payrolls should be more than offset by rising revenues as aggregate demand rises.
It’s important to reflect on the progress the American workforce has made over the past decade. With the recession’s damage fading into the past, workers are in their strongest position in living memory. With no recessionary triggers on the horizon, the nation seems likely to enter a period of sustained demand for labor and steady wage growth.
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Jim Glassman, Head Economist, Commercial Banking
Jim Glassman, Head Economist, Commercial Banking
Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.