Job growth is nice, but earnings are stagnant — and that’s bad


Admittedly I don’t know a ton about economics — I actually got a D in Micro frosh year of college — so I’m not really that strong on all the different indicators of an economy’s health. I can tell you it’s obviously a very politically-positive thing to be able to say that you, as a legislator/executive, created “job growth.” People love the term “job growth.” It implies that their families will have jobs to enter into whenever they need to do so, be it now (they’re unemployed) or later (their children). Job growth is a great concept. It’s not whole picture though. 

You see this at the micro level, too — down with the organizations. A lot of CEO types love to increase headcount, because that’s a sure sign — to investors, to whoever else — that you’re growing and doing/getting better, because you have the ability to take on more people. There’s usually a bad flip side to that, but that’s easily glossed over.

Same kind of thing at the macro level, when addressing the whole economy: job growth is up, yes, but wages are down. Wages rose six cents on average in November, then declined about 5.5 cents on average in December — basically going back to where we were in October, and wages had been stagnant much of this year as well.

Hourly earnings in December rose 1.7% year-over-year, which is barely ahead of inflation. There’s this, too: when the unemployment rate falls — as it did in 2014, from 6.7% to 5.6% — economists typically expect a rise in wages. The theory is that you’re depleting the pool of existing workers, leading to more competition. That hasn’t happened this time.

The reality is probably that companies are still keeping belts tight because of recent economic downturns — and the possibility of another one in 2015 or 2016.

Unemployment Rate and Earnings

So, job growth is the best since 1999 and unemployment is the lowest since 2008! Great!

The problem is, it seems like we’re putting people into jobs with no real opportunity for advancement/promotion/more money. It’s good that they have a job — believe me, there was a period last May where I thought I might not have a job for a year or so, and the idea was terrifying — but maybe we should temper our excitement over the job growth and start looking at ways to encourage employers to consider driving up wages a little bit too. We want to believe people get jobs, work hard, and succeed upwards — that’s part of the notion of the middle class being built, right?

It just seems like constantly talking about “job growth” without the context of other aspects of the jobs picture is a fool’s errand, right?

Ted Bauer


  1. Mostly, yes, it’s a fool’s errand. The stats come from the government, over time they’ve been ‘massaged’ to promote a better picture of the economy than truly exists. Measures of inflation are easily manipulated, and ultimately meaningless since everyone’s measure, or ‘basket’ of goods is different. There’s no way to account for changing quality or value over time; a TV now vs a TV in the 50s, as an example, which is a totally different product and which exists in a totally different competitive landscape as well. There’s no non arbitrary way to determine what goods to include, in what units (if you’re tracking Coke, do you track 2 liter bottles of Coke or six packs?) or what weights to assign to each (does the six pack count more than a TV, or a game console,etc.). Way back in the 90s they modified how mortgages and rents were included in inflation measures, basically hiding the housing bubble and disparity between property values and rents, the former are basically a function of the latter, so a disparity between the two is highly problematic. They also changed how unemployment was measured, if you keep those measures consistent over time it’s much higher than the current numbers, and using a broad based measure more consistent with the pre 90s change counting long term unemployed as well, it’s still over 20%. Then factor in record low labor participation rates and you can see why wages haven’t budged much.

    Basically lies, damned lies, and statistics. Econometrics are themselves ultimately worse though, because people put so much store in them, and they’re meaningless. Prices aren’t objective pieces of information you can tally, but historic artifacts. The whole system is based on intensive, subjective value. Prices are a momentary manifestation based on current conditions of supply, demand, and people interacting on the market. It’s not like physics where you can measure constant extensive physical properties of things, it’s based on subjective valuations which can’t be measured and change over time in unpredictable ways. So basically it’s all bullshit in the end, anyway.

    As far as economics, it’s easy. If you have something and another guy has something, and you each want what the other has more than what you currently hold, you can trade, or not. That’s all, all the rest stems from that.

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