As Employment Grows, When Will We See Wage Growth?

Wage growth remains relatively flat despite indicators of economic recovery. As the unemployment rate falls and employment grows, the increasingly smaller supply of workers is expected to lead to wage growth. As Loretta Mester, president of the Federal Reserve Bank of Cleveland, put it recently in the Wall Street Journal, “basic economics hasn’t gone out the window […]when employment grows, wages will start to grow.”

Over the past two years, however, most workers have not seen much wage growth. In fact, there is a somewhat weak but negative relationship between employment growth and wage growth for over 800 occupations from 2012 through 2014 (each occupation is weighted by the number of people employed in that occupation in 2014). There are some outliers, including occupations in the arts with an especially wide range of wages (such as models and makeup artists), but the majority of occupations are clumped approximately equally around low employment growth and low wage growth.

Employment and Wage Growth by Occupation

Using the Bureau of Labor Statistics’ occupation profiles and typical entry-level education requirements for each occupation, the relationship between employment growth and wage growth from 2012 through 2014 differs depending on the education typically required for an occupation.

Employment and Wage Growth by Typical Entry-Level Education for Occupation

Based on a review of the charts by education required, much of the negative relationship for all occupations is being driven by lower-skilled occupations, those that typically require a high school diploma or equivalent or less. Low-skill occupations with employment growth have seen a decline in real wages over this period, while many of the higher paying occupations have seen declining or stagnant employment. This is likely an indication that there is a surplus of available workers at the low-skill level. In fact, unemployment rates for workers without a college degree were well above the national average, as shown in the chart below from the Bureau of Labor Statistics.

Earnings and unemployment rates by educational attainment

For higher-skilled occupations such as those requiring at least a bachelor’s degree, the expected positive relationship between employment growth and wage growth is evident, indicating that labor market slack for these positions has been eliminated or nearly eliminated. Meanwhile, for middle-skill occupations (typically requiring some college or an associate’s degree) the relationship has been flat, which may suggest a tipping point in the near future as the remaining slack diminishes. Even so, the wage disparity between high and low-skilled jobs has been increasing for decades.

These charts align well with other reports indicating that employment is growing for jobs with higher wages and benefits packages, and most of these jobs are going to people with a bachelor’s degree or higher. This is good news for college graduates, but only part of the story—occupations requiring at least a bachelor’s degree made up less than a quarter of total employment in 2014, while  66% of employment in 2014 was in low-skill occupations.

Until the negative or flat relationship between wage growth and employment growth in lower- and middle-skill occupations reverses, we will likely continue to see little real wage growth in the economy at large.

Research support was provided by Patrick Clapp.

Underemployment in the United States

Many students who graduated during the Great Recession and over the last few years were unable to find jobs for which they were trained. The so-called underemployed workers are employed in an occupation below their level of qualification. For example, a graduate with a Bachelor’s Degree in economics who is waiting tables or working at a retail store is considered underemployed. Chmura calculates a proxy for underemployment by comparing educational attainment supply and demand in a given labor market at various skill levels.

Some metropolitan statistical areas (MSAs) around the country have a higher percentage of underemployed than others.  MSAs in Massachusetts, the District of Columbia, and California top the list of regions that possess a surplus of high-skilled workers in the latest update to Chmura Economics & Analytics’ underemployment dataset.

Interactive FeatureUnderemployment is a useful supplement to other indicators of labor market health. The traditional measure of unemployment from the Bureau of Labor Statistics does not distinguish between workers who are employed in a position aligned with their skills and education. Workers who are underemployed and not necessarily contributing as much as they could to the labor market, represent potential lost productivity, wages, and tax revenue for the region.

High underemployment in a region may also be a positive measure, reflecting the desire of workers to live in a particular area (like the scenic Cape Cod waterfront of Barnstable Town, Massachusetts) and/or higher standards for occupations in certain regions (such as for computer occupations in San Francisco).

Chmura’s underemployment proxies for MSAs, along with more detailed methodology and definitions, are available on our website and at the county, MSA, and state levels within JobsEQ®.

Research assistance for this post was provided by Patrick Clapp.

Using Job Postings to Measure Employment Demand

An article in the Harvard Business Review recently touched on Why Job Postings Don’t Equal Jobs, explaining that these data should be considered unreliable when trying to estimate job demand under various circumstances. Specifically:

  • Professional-type jobs are more likely to be posted online
  • Companies often advertise the same job multiple times, and
  • For job boards that require payment to post openings, firms may post more openings when there is a discount offered, whether or not they currently need those workers.

A few additional concerns were not mentioned in that article:

  • Some jobs are posted for legal reasons, such as firms sponsoring foreign workers for permanent residence (green card). Firms have to “test” the labor market by advertising those jobs even though they have hired a foreign worker already and have no intention of hiring someone else. Most of these cases are professional jobs as well.
  • The methods used to collect and clean online postings and estimate trends over time can be problematic.

The methods used to obtain and clean job postings data are varied and are typically closely guarded. For an objective review of several providers of these data, see the Vendor Product Review:  A Consumer’s Guide to Real-time Labor Market Information. Vendors scrape and spider job boards automatically and manually, code results into anywhere from 5 to 70 data elements, and deduplicate 60 to 90 percent of job ads. Based on around 4 million job postings daily, and assuming ads are only duplicates (not triplicates, etc.), that could mean anywhere from 1.2 to 1.8 million job postings are thrown out as duplicates every day.

Methods for analyzing the postings range from keyword searches to natural language processing and text analytics, but small details in methodology can have outsized effects on what gets counted. Take, for example, the difference between searching job postings on Indeed.com for registered nurses using different keywords such as “rn,” “registered nurse,” or “registered nurses.”

Job Trends from Indeed.com

Source: Indeed.com

This simple search raises a few questions:

  • Which keyword or collection of search terms best represents job postings for registered nurses?
  • Do the keyword results change by region? 
  • In another field, how might different data providers distinguish between R, the statistical programming language, and H.R. (Human Resources) or R&D (Research & Development)?

The answers to these types of questions will likely vary by data provider and should be considered before relying on the data for analysis.

Many providers make a concerted effort to improve collection, parsing, and deduplication methods; however, significant changes in methodologies can cause additional confusion and inconsistency in job advertisement data if used in analysis over time. Changes to the deduplication methodology used by The Conference Board, for example, resulted in revisions lowering estimates by about 460,000 jobs for every month in the series. The overall curves were fairly consistent, showing similar shape and trends, but anyone relying on the actual levels for measuring or forecasting employment demand could find old estimates too high by hundreds of thousands of jobs.

Impact of revisions, HWOL data series

In summary, the use of online job postings data to glean labor market information is promising, but there are a number of concerns that suggest these data are not sufficient replacements for traditional labor market data.

Research assistance for this post was provided by Patrick Clapp.

Why Did Our Unemployment Rate Change?

You may have noticed that your recent historical unemployment rate numbers look different—very different—compared to how you remember them looking just a few months ago. If you’ve noticed this, you’re not alone.

The RIGHT Data

The internet has become a widely used source of data for regional labor market information, but that doesn’t always mean it provides the level of detail needed to make reliable decisions.