Strong Jobs Report Signals Two-Tier Labor Market

By Roy Maurer Aug 5, 2016
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The U.S. economy grew by a hefty 255,000 jobs in July, while the unemployment rate remained static at 4.9 percent, eliciting relief from worried economists after a bumpy summer but concern from others who see a growing skills gap in the numbers.

The Bureau of Labor Statistics (BLS) also adjusted the jobs totals for May and June, adding 13,000 to May's paltry 11,000 jobs tally and raising the June count from 287,000 to 292,000.

"This marks the second consecutive strong monthly jobs report, in which the economy has performed much better than economists predicted," said Andrew Chamberlain, chief economist for employer review site Glassdoor in the San Francisco area. Chamberlain noted that this month's report marks 85 months of positive economic expansion.

"While overall U.S. economic growth remains modest and companies are shying away from other investments, they are clearly not afraid to expand their payrolls," said Josh Wright, chief economist at applicant tracking system and recruitment software firm iCIMS, in Matawan, N.J. And there was no serious impact from the United Kingdom's June vote to leave the European Union, which had been a major concern for economists, he added.

Nearly all of the labor market indicators measured in the July report were positive, including the labor force participation rate's slight rise to 62.8 percent and wages increasing by 8 cents to $25.69. "Wages on an annualized basis were up by almost 4 percent while average hourly earnings have increased 2.6 percent over the course of the year," said Jennifer Schramm, SHRM-SCP, manager of workforce trends at the Society for Human Resource Management (SHRM).

Some experts believe that recent increases to the minimum wage may be starting to have a wider impact on wages across the workforce. "It's definitely possible," Schramm said. "And it's not just the states that raised the minimum wage; a lot of large and high-profile companies recently announced raises for their workforce."

Skills Gap Grows

Significant job gains occurred in professional and business services (70,000 jobs), leisure and hospitality (45,000 jobs), health care (43,000 jobs), public-sector employment (38,000 jobs) and financial activities (18,000 jobs).

However, construction, manufacturing, wholesale and retail trade all showed little change, which are areas that can provide middle-income opportunity, said Tara Sinclair, chief economist at job site Indeed in Austin, Texas. "There are many workers who may not feel as positive as the labor market continues to add jobs at the low and high end, but not enough opportunities in the middle," she said. "We continue to see an uptick in hospitality and service jobs, which are generally lower-paying. So while the headline figure is good and proves the versatility of the U.S. labor market, the types of jobs cause concern about long-term economic strength and growth."

SHRM's New Talent Landscape survey findings show that HR professionals overall are experiencing recruiting difficulty at higher rates than in 2013, but there are differences in the types of vacant jobs that are hardest to fill.

Experts see a growing two-tier job market emerging across the United States, with radically different hiring opportunities depending on education and skill level. "As the demand for specialized skills increases in the coming years, organizations will continue to have trouble finding talent," Schramm said.

Jamie Gilpin, workforce trends analyst and chief marketing officer at immigration legal services firm Visanow in Chicago, said the gap between the types of jobs being created feels "increasingly like a canyon." She urged companies to start "thinking strategically about balancing long-term investment in training current and future workforces with identifying workers around the world who have these skills today."

Labor Market Tightens

The slight decline in the number of unemployed workers was especially encouraging given the rise in labor force participation, Wright said. "Even as the ranks of job seekers swelled by 407,000, more of them were able to find a job."

The unemployment rates for adult men (4.6 percent), adult women (4.3 percent), Asians (3.8 percent), blacks (8.4 percent), Hispanics (5.4 percent) and whites (4.3 percent) showed little or no change.

The number of long-term unemployed (those jobless for 27 weeks or more) sits at 2.0 million and accounts for 26.6 percent of the unemployed.

The number of individuals categorized as involuntary part-time workers—those seeking full-time employment but working part time—grew to 5.9 million in July. "The increase in part-time work underlines concerns about underemployment and the quality of jobs that are being created," Wright said.

Additionally, 2 million people were considered marginally attached to the labor force—that is, they are unemployed but want and are available to work, and had looked for a job sometime in the previous 12 months. Among this group, 591,000 individuals were considered discouraged—not currently looking for work because they believe no jobs are available for them.

The remaining 1.4 million people marginally attached to the labor force in July had not searched for work in the past month for reasons such as school attendance or family responsibilities, according to the BLS.

The strong jobs data is sure to have an impact on the 2016 presidential election. "With just three more monthly jobs reports before voters head to the polls on Nov. 8, analysts will be closely watching for positive—or negative—news in the jobs picture," Chamberlain said.

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