Is the Labor Market Strong or Weak?
The debate between Brad DeLong and Andrew Samwick could be characterized as a question of how strong the labor market really is.
Samwick argues that some ancillary statistics that the BLS reports about the strength of the labor market (e.g. the numbers of discouraged workers, and those who otherwise do not have jobs but would like one) agree with the major statistics that the labor market is improving, and that there are not an unusually large number of people involuntarily out of the labor force.
DeLong, on the other hand, argues that there are other types of evidence that suggest that the labor market has been very weak for years now, and that Occam’s Razor therefore suggests that the labor force participation ratio is low because of this weak labor market – i.e., because people have been involuntarily excluded from the labor market.
Today’s employment report gives me a chance to insert a couple of other bits of evidence into the mix. The first is the amount of work that people currently holding jobs are being asked to do by their employers: average weekly hours worked. The second is the real hourly wage that workers are earning. Both series are shown in the chart below.
Note: Both series are for nonsupervisory workers on private nonfarm payrolls. Hourly wage deflated by the PCE deflator. Source: BLS.
Hours worked has not risen much from the low levels of early 2003, and real hourly wages have been stagnant. Both of these series therefore support the idea that the labor market has been and remains quite weak.
I therefore think that it is time to accept these two stylized facts:
- The labor market is indeed weak, by any number of measures. The demand for labor is unusually low for this point in the business cycle.
- According to household surveys, relatively few people consider themselves to be “unemployed”, and surprisingly few non-working people say that they would like to work if they could.
Now we just need to reconcile these two apparently conflicting facts.
Kash