On Friday, we’ll get the final update for 2019 on the state of the U.S. job market from the federal government. We’re closing out a remarkable decade for economic growth and job creation. What’s coming next for hiring and pay?
Here’s what our team at Glassdoor will be watching for in the December jobs report:
- 167,000 new jobs added to payrolls;
- Unemployment rate unchanged at 3.5 percent;
- Average hourly wages up 3.3 percent; and
- Labor force participation steady at 63.2 percent.
A Look Back
As we look back over the past decade, the U.S. economy has undergone a dramatic transformation.
The decade began with one of the weakest labor markets since the Great Depression. Unemployment was nearly 10 percent in 2010, the Fed was in the midst of a second wave of panic-driven “quantitative easing” to stabilize financial markets, and the economy shed jobs in 5 of the first 12 monthly BLS job reports of the decade.
A decade later, the conversation about the U.S. economy has changed. We ended 2019 with the lowest unemployment rate in 50 years, an accelerating pace of wage growth and the longest span of time without a recession in U.S. history since the 1850s.
When I look back at the last decade, I see two distinct epochs: before and after 2015. In the first half of the decade, most conversations I was having about the job market were centered squarely on bad news, as the economy licked its wounds from the Great Recession. Themes like non-existent wage growth, plummeting labor force participation, and a hollowing out of middle-wage job growth seemed to dominate headlines.
That sentiment shifted in 2015. In light of growing evidence that the economy really was leaving the Great Recession behind, new themes have since filled my job market conversations. Why are there a near-record number of U.S. job openings? How is it possible that the unemployment rate has fallen below what most economists thought possible, and without sparking inflation? What’s behind the widespread reports of labor shortages by employers in blue-collar fields?
There are four big stories that stand out to me when I reflect back on my own past decade as a U.S. job market observer: (1) Remarkably steady job creation, (2) disappearing slack in the job market, (3) a slow return of wage growth, and (4) the remarkable turnaround in labor force participation. Let’s have a look at each in turn.
We Created A Lot of Jobs
If you only paid attention to one fact about the labor market over the past decade, it would be this: We created a lot of jobs, and for many consecutive months. The economy smashed the all-time record for number of months of consecutive job gains — 110 months as of November — and added a whopping 21,879,000 new jobs to payrolls during that stretch. The figure below shows average monthly job gains (in thousands) over the 2010s. We began the decade on perilous ground, adding just 86,000 jobs on average in 2010, and actually losing jobs for many months. As the economy recovered, job gains accelerated, reaching a blazing pace of 251,000 jobs added per month on average during 2014. That year marked a turning point for the economy. That surge of job gains pushed the unemployment rate below 6 percent and turned up the heat on employers facing difficulty filling open jobs.
Although job growth has slowed as the expansion has aged, in 2019 we still added an average of 180,000 new jobs to payrolls per month — a pace far above what’s needed to employ everyone joining the labor force and more. That job-creation juggernaut is likely to ratchet up further downward pressure on unemployment as we enter the 2020s.
Cut Me Some Slack
Throughout the past decade, I’ve watched the shifting tide of opinion about how much “slack” there is left in the U.S. labor market.
By slack, economists mean something like this: Workers who are sitting on the sidelines of the job market, who want to work, but aren’t even searching because of poor job prospects or insufficient pay. Back in 2010, there was a lot of slack in the job market. Millions of unemployed workers simply gave up on finding jobs in the face of a housing crisis and nearly double-digit unemployment. At the time, many analysts worried something was deeply broken in our economy, and that an army of sidelined workers — who made it easy for employers to keep wages extremely low — might be the new normal in today’s economy.
In late 2015, I noticed the conversation shift, as even the broadest measures of unemployment — even ones that included sidelined and marginally employed workers — fell back to normal levels.
As shown in the figure below, the official unemployment rate — affectionately referred to as “U-3” by policy wonks — fell from an average of 9.6 percent during 2010 to just 3.7 percent on average in 2019. A similar trend has occurred for basically every measure of unemployment, ranging from the narrowest definition (U-1) of just long-term unemployed to the broadest definition (U-6).
While there may still be some remaining slack in the job market, one of the biggest stories of this decade has been the slow, steady wringing out of the frighteningly large amount of slack left in the labor market in the Great Recession’s aftermath.
Show Us the Money
At Glassdoor, we have a unique vantage point on pay in the U.S. economy, with millions of salary reports and a sophisticated machine-learning model that estimates pay and job openings for cities in near-real-time.
Before 2015, the most important story about the job market was alarmingly low wage growth. During normal times, average hourly pay rises around 3-4 percent per year. But in the wake of the Great Recession pay growth went off a cliff, hovering between 1.5 and 2.5 percent for half a decade. Even as the unemployment rate fell, wage gains remained stagnant. That fact spurred plenty of theories for why wages were flat and concerns that slow wage growth might be here to stay dominated many conversations I had before 2015.
But that story took an unexpected turn in 2015. As shown in the figure below, in late 2014 the unemployment rate ticked below 6 percent. Fueled by surging job gains, the unemployment rate continued its downward march through the remainder of the decade. And, as the bustling economy pulled at the seams of the labor market, paychecks finally started to rise.
Since 2015 there has been a marked acceleration in average hourly pay growth. While still not back to the previous norm of 3-4 percent, the current ongoing upward trend is unmistakable. It took the economy running hot for nearly half a decade to finally push unemployment below 6 percent. Since then, more employers have had to sharpen their pencils on wage offers, pushing up pay gains just as predicted by old-school microeconomic theory.
(Some) Missing Workers Return
A final job market narrative seen throughout the 2010s was workers quitting the labor force altogether. In the long run, the share of the population that’s in the workforce matters a lot — fewer people working means the economy can’t produce as much, governments have to make do with lower tax revenue, and we risk a smaller economy that delivers poorer living standards to future generations.
In the wake of the Great Recession, the share of the population in the workforce — what’s called the “labor force participation rate” — dropped like a rock. It fell from 64.7 percent in 2010 to 62.7 percent in 2015. Mostly this was due to demographic trends like retiring Baby Boomers and younger workers staying in school rather than getting jobs. But the trend was so stark that it alarmed most observers of the labor market and became a touchstone of policy debate in the 2010s.
As shown in the figure below, that story took an unexpected turn in the latter half of the past decade. Beginning in 2016, as unemployment dipped below 5 percent and wage growth solidified, labor force participation not only stopped falling but started rising. Millions of workers rejoined the job market between 2016 and 2019, partly in response to what we described in a 2017 NPR interview as a “red hot labor market,” helping alleviate fears that Americans were throwing in the towel on the job market en masse.
While demographic forces are likely to drive down labor force participation in the coming years, this reversal of fates in the late 2010s is a remarkable testimony to how far the economy has come over the past decade and the underlying strength of the job market as we enter 2020.
What’s Next for Jobs?
Looking ahead to the next decade, we’re cautiously optimistic about the job market. As always, there are many economic uncertainties on the horizon: Ongoing fears of a breakdown in U.S.-China trade relations, weakening consumer confidence, and slowing online job postings in December on Glassdoor. However, the economy’s fundamentals are still strong by historical standards. There’s no obvious end to the current expansion in sight.
How long will the U.S. economy run hot? We’re already in uncharted territory, riding a wave of the longest expansion in U.S. history. The three biggest sectors adding jobs today remain solid: Healthcare is booming, professional services and tech seem to have unstoppable momentum, and fears of low-skill job automation haven’t put a dent in food services and hospitality hiring so far. Until those leading sectors slow, expect today’s soaring job market to persist into the coming decade.
To speak with Dr. Andrew Chamberlain about this month’s jobs report or labor market trends, contact pr [at] glassdoor [dot] com. For the latest economics and labor market updates, subscribe to email alerts here and follow @adchamberlain.