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Job Market Recovery Led By Low-Wage Sectors

Posted: 04/ 5/2012 2:00 pm

Job Market
The job market's improvement has been led by jobs in restaurants and other low-paying industries.

The job market these days is sort of like that old Catskills joke: The food is terrible, and the portions are so small.

The jobs are lousy, and there aren't enough of them.

More than half of all the jobs created during the past six months have been in low-paying industries such as retail and temporary help, Joseph Brusuelas, senior economist at Bloomberg LP, noted on Thursday.

That helps explain why wage growth hasn't kept up with inflation, despite the economy having created 1.2 million jobs in the past six months.

"Those low-wage paying jobs are not translating into better spending," Brusuelas said in an interview with The Huffington Post.

Friday morning, when those of us lucky enough to have jobs will probably be on vacation, and even Wall Street's trading robots will have a much-needed day off, the Labor Department will release the jobs report for March.

Economists think nonfarm payrolls grew by 200,000 jobs, just a bit less than the 227,000 jobs added in February, according to Briefing.com. Expectations were solidified on Wednesday by a report from payroll processing firm ADP that the private sector created 209,000 jobs in March. The unemployment rate is expected to hold steady at 8.3 percent.

One key thing to watch will be wage growth.

The average hourly earnings of American workers grew just 1.9 percent in February from the year before, according to the February jobs report. That's better than nothing, and certainly better than during the recession, when wage growth dipped to, well, nothing.

But wage growth was not enough to keep up with consumer price inflation, which rose 2.9 percent year-over-year in February, according to the Labor Department. That means "real" earnings, or earnings that are adjusted for inflation, are actually shrinking. A lot. That needs to change in order for the economy to keep recovering.

The problem is that most of the decent job growth we've seen in the past few months has been in sectors that do not pay all that well.

The economy has created 1.2 million nonfarm payroll jobs in the past six months -- great news.

But nearly 668,000 of those jobs -- more than 55 percent -- have been created in the retail, temp, "health care and social assistance" and "leisure and hospitality" sectors, notes Brusuelas.

These sectors account for only 29 percent of the total labor force, he adds, meaning that they take up a small portion of the economy, but are having an outsize effect on job growth.

That's likely to continue. The restaurant sector, for example, is expected to hire more than 400,000 people this summer, MSNBC's Economy Watch blog reported this week: "For all you foodies hoping to land a gig in the glamorous restaurant industry in the months and years ahead, there will be plenty of jobs to be had. The problem is, many of the jobs don't come with a glamorous paycheck."

We can hope that these lower-wage sectors are leading the way for employment in higher sectors. Relatively cheap temp workers in particular are often seen as leading indicators for permanent hiring.

But there is also a risk that lower-wage industries are doing most of the hiring because higher-wage industries like technology can't find enough skilled people to hire.

"For the past year we're hearing anecdotal evidence of a shortage in higher-skilled workers," Brusuelas said. "We're hearing it from CEOs and other real-economy clients, and that's a problem."

Two other things to watch in Friday's jobs report:

  • Some economists say that the mild weather in January and February helped job growth. Will this effect continue in March, or did hiring in those months take away from hiring that would've happened in March, which is typically more seasonable?
  • How many people joined or left the labor force during the month. How many workers have given up looking for jobs forever, and how many have started to look for work again because they're reading news reports of better hiring?

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