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COMMENTARY: THIS JOB MARKET STILL HAS PLENTY OF SLACK
The employment figures released on June 7 sent the bond market into a tailspin. With the jobless rate near 5.5% for more than a year, the notion that 348,000 jobs were added to the economy fueled bond traders' fears of inflation and sent interest rates soaring.
The traders needn't have panicked. True, there are spot labor shortages across the country, just as there were in the late 1980s boom. But the labor market is much softer today. More workers hold temporary jobs. Layoffs are more frequent, causing more long-term joblessness and widespread anxiety that leaves many employees unwilling to demand higher pay. And despite the June 7 numbers, new job openings are fewer. As a result, inflation-adjusted wages are rising at a tepid 0.6% a year, about half the pace of the 1980s recovery.
Inflation hawks cite low unemployment as a key reason to oppose the National Association of Manufacturers and other business groups that want the Federal Reserve Board to lift growth from the current 2% annual pace to 3% or so. But global competition and deregulation are keeping a lid on companies' ability to raise prices. As a result, employers are hiring temps, outsourcing work, and taking other actions that hold down labor costs. That means a faster-paced economy would tighten labor markets without igniting inflation. "We can have faster growth because we're not really at full employment," says Larry Mishel, the chief economist at the Economic Policy Institute, a liberal Washington think tank.
Compare today's labor market with that of 1988. A long-lived recovery had entered its sixth year then, the same stage the current rebound has reached. And unemployment was 5.5%, about equal to today's 5.6%. But only 1.2 million new jobs have been created in the past year, vs. 2.5 million in 1988. And job openings, including posts that become vacant when workers retire, die, or quit the labor force, are 20% lower today, according to the Conference Board (chart). "The downsizings of big companies mean that they're hiring more slowly than in the late 1980s," says Conference Board economist Ken Goldstein.
Meanwhile, there is an enormous supply of available workers. In addition to the unemployed, millions of jobholders want better opportunities. Studies show that, on average, workers who lose their jobs in downsizings--more than 200,000 so far this year--earn about 10% less in their next jobs. Temporary employees, whose ranks have doubled since 1988, to 2.2 million, are likely jobseekers too: They earn $7.74 an hour, compared with nearly $12 an hour for the average worker. And as leaner companies go outside for services, the ranks of workers at outsourcing firms have swelled--even though those firms often pay less than the original employer. There are no measurements of outsourcing for 1988, but 86% of large companies now farm out some services, compared with 58% in 1992, according to consultants A.T. Kearney Inc.
EVEN MICHIGAN. The result: Our current low unemployment rate masks an economy full of workers hungry for better jobs. Look at Michigan. The booming auto industry has driven unemployment there down to 4.6%, and people are moving back from other states. But in February, when the state announced that it would process job applications for auto makers, who may hire some 10,000 people this year, 178,000 applied in six weeks.
Indeed, even Michigan still has plenty of desperate workers. Joseph Pulis, 47, has been job hunting since February, when the Detroit auto-parts company that employed him said his plant would close. Pulis, who has a master's degree in management supervision, made $50,000 a year as plant manager but has found nothing comparable. "I was selective when I started looking, but now it's the difference between being unemployed and working," says Pulis, whose job ended on May 31. "I would take a $10,000 pay cut."
The labor market has tightened slightly in the past year or so. But it's still slack. And it's not at all clear that growth at 2% will ever change that.By Aaron BernsteinReturn to top