A Gangbusters Employment Report

Popular Economics Weekly

Payrolls rose 261,000 in October following an 18,000 rise in September, easily weathering the season's hurricane disruptions, the government said Friday. But 765,000 dropped out of the labor force, which is why the unemployment rate fell to 4.1 percent.

The swing factor between the two months is restaurants where payrolls jumped 89,000 after plunging 98,000 during September's storms, said Econoday. Professional business services underscore how urgent demand for labor is, rising 50,000 in October with the temporary help component up 18,000 for the strongest rise of the year.

Graph: Econoday

Where are the new workers to come from with so many discouraged workers, if economic growth is to continue? Tax cuts won’t do it, when there aren’t enough workers willing to work. Wages have to rise faster to bring back those workers.

Wages fell a penny to an average of $26.53 an hour. The year-over-year increase in hourly pay slowed to 2.4 percent from 2.8 percent, though wage figures for the past two months were distorted by the storms. But most of the wage increase was in low-paying restaurant work, which means corporations still aren’t boosting wages enough to bring back discouraged workers.

And those actively looking for work fell nearly 300,000 to 6.520 million for an unemployment rate of 4.1 percent, the lowest in 17 years, reports Econoday. When also including those not actively looking but wanting a job, the number moves to only 11.750 million which is a 10-year low.

It will take more generous wages to bring back those workers now sitting on the sidelines. In other words, the return of discouraged workers may have run its course, unless corporations decide to pay more for their workers, rather than continuing to boost the pay of their executives (up more than 4 percent). The labor participation rate fell a steep 4 tenths to 62.7 percent, which is 4 percent below the longer term average, and really a reflection of the fact that wages still aren’t rising faster than inflation.

So why not boost wages, corporate executives? Tax cuts won’t do much to boost the wages of those in the 60 percent middle-income brackets—from $32,000 to $140,000 per year—since they already pay just an average 2.5 percent in income taxes.

Harlan Green © 2017

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