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Dear Subscriber,
Welcome to the September 2022 Ray Marshall Center newsletter, written by Heath Prince and our new Co-Director Greg Cumpton.
Heath tells us:
It seems like every time we turn on the news or open a newspaper (do we still do that?) lately, there’s another angle taken on the post-Covid labor market. “Where are the workers” is a common question that inevitably comes up in conversation, at least in the circles that we labor market policy wonks run in, and it’s not one that has an easy answer. “The Great Resignation” was in vogue for a minute as a way to explain the deep and persistent lag in the return to the workforce as the economy began to recover. When data had trouble supporting that theory, it was replaced with “The Great Reshuffling,” referring to the pandemic’s tendency to bring many of us to a reckoning with not only setting aright our work/life balance, but also with the fact that life is short and, if possible, we should spend it working on that in which we are truly interested. Of course, the sort of frictional unemployment implied by a reshuffling might explain some of the mystery, at least as far as higher-end earners are concerned. And, older workers who could afford it may well have resigned rather than re-enter the uncertainty that has come to characterize the workplace in a world in which, wishful thinking notwithstanding, Covid still circulates.
So, these sorts of pat responses might work to bridge over awkward moments in the dinner conversation around figuring out where the workers are, but they’re not really satisfying. Elise Gould, Senior Economist with our good friends at the Economic Policy Institute, recently noted that private sector employment is now 0.7 above pre-pandemic levels, although public sector employment hasn’t yet recovered, accounting for a shortfall in jobs of approximately 700,000 compared to pre-pandemic levels. And, other studies point to similarly encouraging news concerning a jobs-recovery: given that the CBPP estimated that the actual unemployment rate in April 2020 was closer to 25%, vs. the official 14.7%, once misclassified workers and workers who had left the labor force entirely were factored in, the fact that, according to the CBPP, the economy is within 134,000 jobs of pre-pandemic level employment is something to celebrate. The jobs recovery appears to be real, and, make no mistake, it has been a policy-driven recovery.
These successes notwithstanding, there are wage inequalities at the heart of the jobs recovery. The Employment and Training Reporter reports this week on a couple of trends that should give us pause. First, we learn that the U.S. poverty rate remained stable in 2021 (likely due to additional cash assistance programs implemented during the pandemic-related closures). The poverty rate for a family of three (two parents and one child, e.g.) is $21,559—meaning that if a household earns more than this, it is not, as far as the federal poverty statistics are concerned, a poor household. Consider for a moment, however, whether or not this is a reasonable estimate of what it would take to live a decent life. Others have, and various “living wage” calculators have been produced that come a little closer to approximating the reality of living in 2022 America and supporting a family, without relying on public assistance. MIT, for example, maintains a living wage calculator that, for that same family of three, estimates that it would take $50,400 to meet their basic needs and maintain self-sufficiency in Travis County. And, while median income in Travis County is currently around $64,000 in Travis County, it’s far lower for Black and Hispanic residents, at $45,000 and $46,000, respectively.
Which brings us to the second concerning trend in this week’s ETR: the Gini Index, a commonly recognized measure of income distribution across a population, rose in the U.S. this past year by 1.2%, to 0.494 (with 0 equaling perfectly equality of income distribution, and 1 equaling perfect inequality of income distribution), driven largely by lower income households seeing their income fall from 2020-2021. It’s worth noting, too, that, among the G20, the U.S. ranks ahead of only Turkey, Mexico, and South Africa as most unequal in terms of income distribution. So, while an already too low poverty rate is (at least) remaining stable, income inequality is on the rise, possibly driven by minority workers, once again, losing ground, never mind what inflation has done to wages in general (a topic for another essay).
The point of this meandering is to warn against becoming complacent with what are, in fact, encouraging jobs numbers—they signal that the economy is on the road to recovery. However, recovery has to mean the emergence of new relations between workers and employers that are based on fairness and equity and strengthening workers’ voice.
Greg tells us:
Heath, I think you are really onto something. Considering all the discussions I hear from employers about their inability to hire workers, when we look at the most recent numbers of non-farm payroll employment, we actually see greater numbers of individuals in the labor market than just prior to the start of the pandemic. The return of these workers post-pandemic cannot erase the recent past when many employers were competing for the same workers and began offering higher wages to attract them. Wages are notoriously ‘sticky’ and do not respond apace with faster-moving labor market conditions, which economists call wage rigidity. While considerable literature focuses on why wages tend not to fall during recessions (downward wage rigidity), I suspect the opposite is occurring here. Higher wages meant to draw individuals back into the labor market worked, but now employers feel forced to pay them (upward wage rigidity).
While companies are still poaching existing workers from their competitors, individuals who choose to stay at their jobs are not receiving these wage increases. I’ve heard from a number of friends in the tech industry that new hires are earning considerably more than their formerly hired peers. So if you don’t want to leave your job, what can you do?
While workers can individually ask for raises and additional benefits from their employer, doing so collectively might produce systemic wage and benefits changes across the company. Some workers are choosing to unionize, partly in response to this emerging two-tiered system, and partly because the tight labor markets give workers the upper hand at the bargaining table. According to Gallup, 71% of Americans view unions favorably, the highest measure since 1965. And the National Labor Relations Board experienced a 57% increase in unionization applications over the first half of this fiscal year. I spoke about this on one of our local news stations, KXAN, just the other day. We know that unions improve wages and benefits for all workers, not just union members. They also help ensure a level of job security that has been under threat for decades.
At least some employers have fiscal room for making concessions for workers, given that they appear to be successfully placing additional costs of materials to consumers, with corporate profit margins at their widest since 1950.
We sum up with:
After decades of watching the purchasing power of American workers’ wages stagnate, parallel with the erosion of workers’ ability to organize, it’s extraordinarily encouraging to see growing support for, and successes with, unionization. Is this driven by generational change—are Gen Zs leading the charge to reshape the labor force? Are workers taking advantage of a tight labor market to press for long-neglected improvements in wages and working conditions? Is it a confluence of both of these trends, plus others not mentioned here? Whatever the cause, we need to ensure that, as we move into the post-pandemic labor market, that the jobs recovery and the undeniable growth in support for organized labor combine to ensure the closing of the disgraceful gaps between the low bar of the federal poverty level and the actual level of income needed to live a decent life, as well as the elimination of the income inequality.
P.S.
To faithful readers of our newsletters, you’ll notice a change right off the bat in this introduction. The RMC is now led by co-Directors Heath Prince and Greg Cumpton! We’ve been partners in good for nearly nine years now, and it’s high-time Greg received the credit he’s due. Please join me in congratulating Greg on his well-deserved promotion to RMC Co-Director!
We hope you enjoy this issue, and please stay in touch.
The Ray Marshall Center for the Study of Human Resources envisions a world where sound, responsible policies and programs reduce poverty and advance human potential.
Heath J. Prince, PhD, Co-Director
Greg B. Cumpton, PhD, Co-Director
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