The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
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- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
February 17, 2016
Are Paychecks Picking Up the Pace?
From the minutes of the January 26–27 meeting of the Federal Open Market Committee, it's clear that many participants saw tightening labor market conditions during 2015:
In their comments on labor market conditions, participants cited strong employment gains, low levels of unemployment in their Districts, reports of shortages of workers in various industries, or firming in wage increases.
Based on the Atlanta Fed's Wage Growth Tracker (WGT), the median annual growth in hourly wage and salary earnings of continuously employed workers in 2015 was 3.1 percent—up from 2.5 percent in 2014 and 2.2 percent in 2013. That is, the typical wage growth of workers employed for at least 12 months appears to be trending higher.
However, wage growth by job type varies considerably. For example, the WGT for part-time workers has been unusually low since 2010. The following chart displays the WGT for workers currently employed in part-time and full-time jobs. For those in part-time jobs, the WGT was 1.9 percent in 2015, versus 3.3 percent for those in full-time jobs. The part-time/full-time wage growth gap has closed somewhat in the last couple of years but is still large relative to its size before the Great Recession. Note that full-time WGT is similar to the overall WGT because most workers captured in the WGT data work full-time (81 percent in 2015).
In addition to hours worked, median wage growth also tends to vary across occupation. The following chart plots the WGT for workers in low-skill jobs, versus those in mid- and high-skill jobs. (We define low-skill jobs as those in occupations related to food preparation and serving; building and grounds cleaning; and maintenance, protection, and personal care services.)
Notably, after lagging during most of the recovery, median wage growth in low-skill occupations increased 2.8 percent in 2015, versus 2.0 percent in 2014 and compared to 3.2 and 2.7 percent for other occupations in 2015 and 2014, respectively.
The improvement in wage growth for low-skill occupations seems mostly attributable to full-time workers; wage growth for people in low-skill jobs working part-time was about half that (1.6 percent versus 3.0 percent) of those working full-time (see the chart).
This pickup in low-skill wage growth fits with some anecdotal reports we've been hearing. Some of our contacts in the Southeast have reported increasing wage pressure for workers in lower-skill occupations within their businesses. One can also see evidence of growing tightness in the market for low-skill jobs in the help-wanted data. As the following chart shows, the ratio of unemployed to online job postings for low-skill jobs is always higher than for middle- and high-skill occupations. But the ratio for low-skill jobs is now well below its prerecession level, and the tightness has increased during the last two years.
The take-away? Wage growth for continuously employed workers appears to have picked up some steam in 2015, and the recent trend in wage growth is positive across a variety of job characteristics. Wage growth for people in lower-skill jobs has increased during the last couple of years, consistent with evidence of increasing tightness in the market for those types of jobs. The largest discrepancy in wage growth appears to be among part-time workers, whose median gain in hourly wages in 2015 still fell well short of those in full-time jobs.
February 05, 2016
Introducing the Refined Labor Market Spider Chart
In January 2013, Atlanta Fed research director Dave Altig introduced the Atlanta Fed's labor market spider chart in a macroblog post.
In a follow-up post that June, Atlanta Fed colleague Melinda Pitts and I introduced a dedicated page for the spider chart located at the Center for Human Capital Studies (CHCS) webpage. It shows the distribution of 13 labor market indicators relative to their readings just before the 2007–09 recession (December 2007) and the trough of the labor market following that recession (December 2009). The substantial improvement in the labor market during the past three years is quite evident in the spider chart below.
As of December 2012, none of the indicators had yet reached their prerecession levels, and some had a long way to go. Now, many of these indicators are near their prerecession values—and some have blown by them.
To make the spider chart more relevant in an environment with considerably less labor market slack than three years ago, we are introducing a modified version, which you can see here. Below is an example of a chart I created using the menu-bars on the spider chart's web page:
In this chart, I plot the May 2004 and November 2015 percentile ranks of labor market indicators relative to their distributions since March 1994. As with the previous spider chart, indicators such as the unemployment rate, where larger values indicate more labor market slack, have been multiplied by –1. The innermost and outermost rings represent the minimum and maximum values of the variables from March 1994 to January 2016. The three dashed gray rings in between are the 25th, 50th, and 75th percentiles of the distributions. For example, the November 2015 value of 12-month average hourly earnings growth (2.26 percent) is the 23rd percentile of its distribution. This means that 23 percent of the other monthly observations on hourly earnings growth since March 1994 are lower than it is.
I chose May 2004 and November 2015 because they had the last employment situation reports before "liftoffs" of the federal funds rate. November 2015 appears to be stronger than May 2004 for some indicators (job openings, unemployment rate, and initial claims) and weaker for others (hires rate, work part-time for economic reasons, and the 12-month growth rate of the Employment Cost Index).
The average percentile ranks of the variables for these two months are similar, as the chart below depicts:
Also shown in the chart is the Kansas City Fed's Level of Activity Labor Market Conditions Indicator. It is a sum of 24 not equally weighted labor market indicators, standardized over the period from 1992 to the present. In spite of its methodological and source-data differences with the average percentile rank measure plotted above, it tracks quite closely, especially since 2004. However, as shown in the spider chart that I referred to above, there is quite a bit of variation within the indicators that may provide additional information to our analysis of the average trends.
We made a number of other changes to the spider chart to ensure it reflects current labor market issues. These changes are documented in the FAQs and "Indicators" sections of the new spider chart page. Of particular note, users can choose not only the years for which they wish to track information, but also the period of reference that provides the basis of the spider chart. The payroll employment variable is now the three-month average change rather than a level. Temporary help services employment has been dropped, and two measures of 12-month compensation growth and the employment-population ratio (EPOP) for "prime-age workers" (25 to 54 years) have been added.
Some care should be taken when comparing recent labor market data values with those 10 or more years ago as structural changes in the labor market might imply that a "normal" value today is different than a "normal" value in, say, 2004. The variable choices for the refined spider chart were made to mitigate this problem to some extent. For example, we use the prime-age EPOP as a crude adjustment for population aging, putting downward pressure on the labor force participation rate and EPOP over the past 10 years (roughly 2 percentage points). This doesn't entirely resolve the comparability issue since, within the prime-age population, the self-reporting rate of illness or disability as a reason for not wanting a job has increased about 1.5 percentage points since 1998 (see the macroblog posts here and here and the CHCS Labor Force Participation Dynamics webpage). If this increase in disability reporting is partly structural—and a Brookings study by Fed economist Stephanie Aaronson and others concludes it is—some of the decline in the prime-age EPOP since the late 1990s may not be a result of a weaker labor market per se.
Other variables in the spider chart may have had structural changes as well. For example, a study by San Francisco Fed economists Rob Valleta and Catherine van der List concludes that structural factors explain just under half of the rise in the share of workers employed part-time for economic reasons over the 2006 to 2013 period.
To partially account for structural changes in trends, we allow the user to select one of 11 time periods over which the distributions are calculated. The default period is March 1994 to present, which is what was used in the example above, but users can choose a window as short as five years where, presumably, structural changes are less important. A trade-off with using a short window is that a "normal" value may not produce a result close to the median. For example, the median unemployment rate is 5.6 percent since March 1994 and 7.3 percent since February 2011. The latter value is much farther away from the most recent estimates of the natural rate of unemployment from the Congressional Budget Office and the Survey of Professional Forecasters (both 5.0 percent).
In our June 2013 macroblog post introducing the spider chart, we wrote that we would reevaluate our tools and determine a more appropriate way to monitor the labor market when "the labor market has turned a corner into expansion." The new spider chart is our response to the stronger labor market. We hope users find the tool useful.
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- What the Wage Growth of Hourly Workers Is Telling Us
- Making Analysis of the Current Population Survey Easier
- Mapping the Financial Frontier at the Financial Markets Conference
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