NCPA - National Center for Policy Analysis

Low Pay Clouds Job Growth

August 7, 2013

The U.S. labor market's long, slow recovery slowed further in July -- and many of the jobs that were created were in low-wage industries. Employers added a seasonally adjusted 162,000 jobs in July, the fewest since March, the Labor Department said last week, and hiring was also weaker in May and June than initially reported. Moreover, more than half the job gains were in the restaurant and retail sectors, both of which pay well under $20 an hour on average, says the Wall Street Journal.

Yet even as job growth slowed, the unemployment rate fell to 7.4 percent from 7.6 percent, the lowest level since December 2008.

  • The falling jobless rate reflects to some degree a pace of hiring that, though slow, has remained steady over the past year even as the broader economy has grown in fits and starts.
  • The United States has added an average of 192,000 nonfarm jobs per month so far this year, hardly a robust pace but more than enough to keep up with population growth.

But the drop in the unemployment rate is also the result of a job market that remains too weak to draw back workers who have dropped out of the labor force.

  • Some 6.6 million workers say they want a job but don't count as unemployed because they aren't actively looking, a number that has barely budged in the past year.
  • The number of Americans working or looking for work fell by 37,000 in July; as a share of the population, the labor force remains near a three-decade low.

The conflicting job market signals complicate the job of the Federal Reserve as it considers when to begin winding down its $85 billion-a-month bond-buying program meant to spur growth. The Fed has said it expects the unemployment rate to be about 7 percent when it stops buying bonds, a mark that could now be within reach by year's end.

Further complicating the picture: Hiring has been stronger in recent months than economists would expect given the slow pace of economic growth, a disparity that's unlikely to continue long term. Most economists, including those at the Fed, expect growth to accelerate modestly in the second half of the year.

Source: Ben Casselman, "Low Pay Clouds Job Growth," Wall Street Journal, August 3, 2013.


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