Skip to content

Are we in a tight labor market? Have we ever been?

How tight is the labor market? I've long been mildly skeptical that it's as tight as people seem to think, and today Jason Furman tweets the following chart:

If this is correct, the labor market was equivocal around 2021, with two measures suggesting looseness and three measures suggesting tightness. Since then, the measures showing tightness have come down and are now only slightly above normal.

So where does that leave us? My take is straightforward: after you've charted and analyzed every possible measure of tightness in the world, you're left with one thing: wages. If the labor market is tight, wages go up. If wages aren't going up, then the labor market isn't tight. This is an iron law. So how have we been doing on this score?

Since 2019 real wages have barely budged, and since 2021 every single wage measure is down. I don't understand it, but this just isn't consistent with a tight labor market. In the early days of inflation you could explain it by saying employers were simply behind the curve and didn't realize they needed to increase pay substantially. But it's been over two years now, and there's plenty of evidence that employers have raised prices well beyond inflation levels and reaped higher profits as a result. They know exactly what's going on and they can afford to pay more if they want to. But they still haven't raised wages to attract supposedly scarce workers.

So tell me again how this can possibly represent a tight labor market?

17 thoughts on “Are we in a tight labor market? Have we ever been?

  1. RD77

    Part of the explanation is people working multiple low paying jobs. Also fake job postings falsely make it look like there are lots of unfilled jobs.

    1. Eve

      I make $100h while I’m courageous to the most distant corners of the planet. Last week I worked on my PC in Rome, Monti Carlo at the long final in Paris. This week I’m back inside the USA. All I do fundamental errands from this one cool area see it. For more information,
      Click on the link below… https://GetDreamJobs1.blogspot.com

  2. lawnorder

    The market can remain irrational longer than we can remain solvent. In principle, a tight labor market should lead to rising wages, but how fast? Labor probably faces the highest resistance to price increases of any commodity. Eventually, vacancy pressure will overcome that resistance, but nothing in fundamental economic theory says when.

  3. cmayo

    I'm actually not sure that's such an iron law in this day and age. With the degree of market consolidation that exists now, employers have more leverage to suppress that upward pressure on wages.

  4. skeptonomist

    Editors, pundits, reporters are mostly anti-labor, or at least indifferent. Newspaper management is definitely anti-labor - the production side of newspapers used to have strong unions. WSJ, business sections of newspapers - anti-labor. Do advertisers want to raise the cost of their labor? There is big money which supports the story of uppity workers demanding higher wages in a mythical labor shortage.

    Kevin says "employers have raised prices well beyond inflation levels" which doesn't make sense, but maybe what he means is employers have raised prices on account of shortages, without necessarily trying to hire more workers by offering higher wages. This may be a reasonable strategy if they think the shortages will be temporary. But anyway labor just doesn't have the leverage it used to for several reasons, including outsourcing and immigration but also many government policies as both parties have moved to the right from where they were 50 years ago.

    1. TheMelancholyDonkey

      Kevin says "employers have raised prices well beyond inflation levels" which doesn't make sense . . .

      What he means is that companies have raised prices well beyond their own increased costs. Those higher prices are feeding into higher profits, rather than resulting from higher expenses. Basically, it turns the orthodox view of inflation, in which the biggest driver of inflation is a wage/price spiral, on its head. They are raising prices because they can, not because they have to.

  5. NealB

    We all continue to work cheap. And we're conditioned to need a paycheck. It's the basis of the free market; and everything that's shitty about it.

  6. D_Ohrk_E1

    Summary: KD chooses to use wages to disprove labor tightness signals in all other indicators, because he firmly believes in the Phillips Curve.

    This, mind you, despite a prior chart he posted showing a surge in baby boomer retirements starting with the pandemic shutdowns. And generally, younger age groups earn less than those closest to retirement.

    1. Vog46

      What Kevin keeps believing is that businesses will continue to be honest and treat everyone fairly. That is clearly not the case

      We are creating jobs through demand and new businesses. There were NO computer jobs, internet jobs, AI jobs, Amazon jobs, or cell phone jobs when I entered the workforce. Conversely, there are no more coal delivery drivers, newspaper delivery boys, etc
      But what is throwing a monkey wrench into KDs thinking. He completely ignores the fact that there is another class of people "in the mix". It is no longer just businesses and workers - you now have to please the investor class of people. "Charge what the market will bear" - "keep wages low so that we profit more" no longer applies. Why? Because the results of those two things doesn't go back into the businesses, or labor - it goes to the investor class.

      But this too will change. Take a look at this chart from FRED:
      'https://fred.stlouisfed.org/series/LFWA64TTUSM647S

      Notice anything about that graph?
      In Jan of 2010 the # of working age people was roughly 198M, in 2020 it was 205M a change of 7M.
      from 2000 thought 2010 the change was 20M
      from 1990 through 2000 the change was 19M
      from 1980 through 1990 the change was 17M

      The change of the number of workers is astonishing from a 20M increase the previous decade to 7M is the last decade is a precipitous drop
      But we are still creating jobs at a "baby boom": pace

      And keep in mine that graph of working aged population counts anyone who works 1 hour per week or more - not just full time workers,
      Japans graph is predictive
      https://fred.stlouisfed.org/series/LFWA64TTJPM647S

      China is looking at a decline also
      KD is ignoring the investor class in his arguments and they are driven by one thing and one thing only - greed. Profits above all else. It is now business, labor and investors.

  7. jdubs

    I feel like the all-important, charted wage info might look very different if it was broken out by income level or age levels. We might draw different conclusions if we saw that wages were rising rapidly for some groups, stagnant and falling for others.

    When businesses and economists panic about the strength of the labor market, its usually not the high wage earners (engineers, doctors, lawyers, middle managers, etc..) that give them the shakes. The Fed isnt going step in to tank the economy because the bonuses for partners and tech bros are getting a bit frothy.

  8. Lounsbury

    Without taking any view on the underlying subject, for ... the use of Real Wages in this context is wrong, wrong wrong. - the fact that real wages have not increased is utterly a different subject.

    The observation on labour market is a Nominal observation and there is nothing in principal that says Real Wages should be increasing as it is generally the case that Real Wages increase with productivity gains, and do not increase in inflationary environments - although of course nominal wages do (but rarely keep up with inflation, which surprise surprise is one reason the non BoBo ordinary labouring classes hate inflation so much).

    What should be shown is Nominal to Nominal increases to see what effect is happening - particularly on a relatively short timespan during an inflaitonary surge.

    This is an area that needs nominal to nominal analayss - what Drum is doing here is simply ... "Not even wrong"

  9. golack

    I remember when numbers were seasonally adjusted. The pandemic did disrupt that. But now, maybe we could get back to that. Large increases in employment as schools let out and summer starts--expected. How big an increase due to seasonal hiring--I have no idea.

    As for other weirdness....Social Security retirement benefits get better the longer you wait to take them. That can keep people working longer. A number of people also retired early during the pandemic. That doesn't mean taking social security early. They'll be looking for jobs too. Some need extra cash now--some because they're bored--and some combination of those.

    The metrics are not picking up on everything going on in the labor market. If the worker shortage was as bad as some claim, wages would be going up--and not just because of minimum wage increases. The labor market can vary wildly from place to place and type of job--but it comes across as though employers would like to make new hires if they can do it on the cheap.

    When big companies were in difficulty, they started a lower pay scale for incoming workers--and have kept that for...well...ever. Some of the recent strike actions have been to bring everyone back onto the same higher pay scale. Worker's share of the GDP has not gotten back to historical norms. There has been a disconnect between productivity gains and workers pay for some time--that has to turn around. We have to undo Reaganomics.

  10. Vog46

    It used to be that profits would be plowed back into a business int he form of new equipment or raises to get more workers
    Now they take those profits and GIVE it to investors in the form of dividends
    It keeps wall street happy.

    Wall St is beginning to run America along with the OTHER group that we know about - the 1%.

  11. Goosedat

    Phoenix, one of the hottest cities in America, will not open 18 of 29 public swimming pools this summer because of a lack of lifeguards. Despite a $3000 bonus the lack of staff is being blamed on the loss of glamour for lifeguards.

  12. kahner

    anectdotally, i find it interesting that people i know trying to hire insist they can't find candidates while people i know looking for jobs insist they can't find anything because there are too many competing candidates. and both sides often blame biden.

Comments are closed.