Feedback
Business

Labor Trade Off: Growth Slows, But the Quality of Jobs is Improving

Although the United States added fewer jobs than expected in April, there are good indications that those jobs pay more.

The Bureau of Labor Statistics said the labor market added 160,000 jobs in April, compared to 202,000 predicted by a Reuters survey. Economists attributed the shortfall to a number of factors, including the vagaries of seasonal fluctuations and weather, as well as the changing face of the recovery. As the economy improves and the number of people without jobs falls, companies have a tougher time filling positions and take longer to do so, which puts a brake on total job creation numbers.

Read More: U.S. Adds 160,000 Jobs in April, Fewer Than Expected

While the pace of growth slows down as recoveries mature, the quality of those jobs improves. The first jobs to come back following a recession are in places like stores, restaurants and hotels, said Raymond James chief economist Scott Brown. This activity boosts job numbers and lowers unemployment but does little for wage growth, since most of these jobs tend to be lower-paying. As recoveries mature, the pace of growth slows down but the quality of those jobs improves.

Jobs report: Unemployment rate unchanged at 5% 1:24

The areas with the biggest gains in April were professional services and healthcare, which added 65,000 and 44,000 jobs, respectively. "I think this is a very good sign," Brown said.

The gains in professional services jobs included 21,000 jobs added in management and technical consulting services, and 7,000 in computer systems design and related services.

"The vast majority of jobs are quite good," said Andrew Chamberlain, chief economist at Glassdoor.com. "From that perspective, yes, you could say this looked like the big job gains were in good jobs."

Read More: Intel Cutting 12,000 Jobs, 11 Percent of Workforce

This rebound, combined with the dynamic of higher demand and fewer workers across the board, is leading to rising wages, a metric economists — not to mention Federal Reserve Board members — have been watching closely. Average hourly earnings rose 8 cents in April, to $25.53, bringing the annualized rate of wage growth to 2.5 percent. By comparison, wage growth was at 2 percent 18 months ago.

"I do expect wage growth to continue to accelerate," said Mark Zandi, chief economist at Moody's Analytics, although he predicted it will take another 12 to 18 months for wage growth to reach 3.5 percent, a figure generally considered by economists to be reflective of a healthy labor market.

"There's definitely upward pressure on wages — there's no doubt about it," said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

Why the jobless rate is larger than you think 1:27

But while higher wages are good news for workers whose paychecks have been treading water for some time now, it's not such welcome news in corporate America's boardrooms, Kaufman warned.

"We've had a long period now of earnings deterioration, and increased salaries or wage pressure is in no way going to help the earnings picture for all these companies," he said. That consideration could factor into the Fed's decision on raising rates next month, if revenue worries strongly influence investor behavior and weigh on market averages.

Read More: Dollar Cedes Ground Before U.S. Jobs Report

Economists say wage pressure is coming from both ends of the income spectrum. Movement to raise the minimum wage is pushing up worker pay from the bottom, while competition for workers with sought-after or specialized skills is boosting salaries for high earners — and some say signs are good that this trajectory could continue in the months ahead.

The longer workweek recorded in April suggested further improvement on the horizon, according to Zandi.

"Hours worked increased, which is a good leading indicator of future job growth," he said, since employers tend to increase the hours their current employees work before hiring more people.