Sometimes -- not often, but sometimes -- anecdote is more revealing than data. Especially when the data are subject to major revisions, which is the case with most monthly economic data. This is one of those times. Last week’s jobs report -- 295,00 new nonfarm jobs in February -- was a bit more robust than most experts had expected, and the unemployment rate ticked down from 5.7% to 5.5%. Not bad, but it doesn't tell us whether the news was good enough to persuade the Federal Reserve Board’s monetary policy gurus to begin raising interest rates in June. Fed watchers disagree, some saying that a reluctant Janet Yellen, the Fed chair, is now persuaded that it will take an unemployment rate closer to 4% to raise concerns of overheating. With inflation now nil, this reasoning goes, she will keep rates on hold well beyond June. Others note that the relatively robust job creation rate will force her hand by June, which seems to be the view of a majority of investors, who sold Treasuries, driving their price down and, the obverse, interest rates up to a wide premium over German bunds. Which is why the rush to buy dollars accelerated, driving the euro down further, with the expectation that the European Central Bank will help the euro down even more by easing monetary policy.
Enough of this data mining, fun for economists who have forgotten that their profession is more truly called “political economy”. The real question is whether the economic recovery and trends in the labor market are finally creating a feel-good factor that will dominate the 2016 congressional and presidential elections. The answer to that seems to be leaning more towards “yes” than towards “no”, unless, of course a candidate far left of Hillary Clinton plucks the nomination from her eager grasp, as did Barack Obama in 2008. Recall that both political parties are claiming to have the answer to the seemingly intractable problem of the rich getting richer and everyone else getting, if not poorer, less likely to move up the income ladder. This is old stuff for Democrats, but new for Republicans, with Jeb Bush promising to make the issue of rising inequality the most important in his campaign for the presidency, should he overcome the initial hostility of core Republicans to his campaign for the party’s nomination and of many voters to the prospect of another Bush in the White House.
Start with two forces that are pushing wages up at the low end of the scale: statutes raising the minimum wage, and, possibly but not certainly related, private-sector employers’ decisions to raise entry-level wages in several industries. Last year, 14 states and the District of Columbia raised their legal wage floors at the cost, say conservative critics, of the number of jobs on offer, a response not yet reflected in the data. Now, several important employers are raising entry-level wages, not out of a burst of philanthropic enthusiasm, but because they have to. Walmart, the largest private sector employer in America, will pay entry-level workers $10 per hour starting next year, 38% more than the federal minimum wage of $7.25. The increase will benefit about 500,000 of the giant retailer’s 1.4 million U.S. workers, and put pressure on other companies competing in that segment of the labor market to do the same. Walmart is hoping to reverse the recent downtrend in store traffic by hiring more motivated, more customer-friendly workers, and by providing a clearer upward path to high-paying jobs to attract store managers who will not leave produce on the shelves after their sell-by dates, mismanage inventories, and allow stores to become seedy -- all recent problems for the chain.
Employers in the food service and leisure industries are also finding it necessary to increase wages for lower-skilled workers. Restauranteurs and hoteliers pushed wages up at a heady annualized pace of more than 3% in the last half of 2014, doubling the earlier rate, as they struggled to compete with other industries that are raising pay for the unskilled.
At the middle of the labor market things are looking up for recent college graduates, although perhaps fortunately for future overall productivity, not for youngsters graduating from law schools. Survey data suggest that 53% of the 2014 bachelor degree graduates landed full-time jobs within six months of graduation, another 25% found part-time work or went on to graduate school, leaving about 20% still looking for work or admission to a graduate program. Graduation-to-work has always been the American norm: the British concept of “a gap year”, where students loll around or travel for the year following graduation, never caught on here. Take it from one who never had the courage to suggest such an idea to his father.