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Job Numbers Are Improving. That Doesn't Always Mean Higher Wages

After an increase of 12 cents in January, average hourly wages gave back some of those gains last month, falling by three cents.
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The good news is the U.S. labor market is adding jobs at a better-than-expected clip. The bad news is that jobs today aren’t paying enough to propel wage growth forward.

In February, the economy added 242,000 jobs, considerably more than the 190,000 economists had anticipated; the official unemployment rate held steady at 4.9 percent; and upward revisions to previous numbers yielded a three-month average increase of 228,000 jobs. To economists who study the market, this was cause for cheer, as was the slight uptick in the labor participation rate.

“I view this mostly as a good report. The job creation number was very good,” said Georgetown University professor of public policy Harry Holzer. “[Growth] remains encouraging.”

The flip side was wages. After an increase of 12 cents in January, average hourly wages gave back some of those gains last month, falling by three cents and dragging the annualized growth number from 2.5 to 2.2 percent.

“We certainly don’t seem to have workers in strong enough bargaining positions so they can get bigger pay packages each year,” said Gary Burtless, a labor economist at the Brookings Institution. “The big problem is that workers have seen their share of the output of American corporations decline.”

Productivity gains should lead to pay gains for workers, especially as unemployment falls, Burtless said, but this hasn’t happened so far.

“This has always been a two-steps-forward and one-step-back recovery,” said Mark Hamrick, a senior economic analyst at

Read More: Economy Adds 242,000 Jobs in February, Unemployment Rate Holds Steady

Hamrick said the lapse in wage growth indicates a change to what economists consider a typical economic cycle.

“This isn’t your father’s 4.9 percent unemployment rate, because this is the slack that was created by the detonation of a financial crisis that almost went nuclear,” he said.

A report on Wednesday from ADP and Moody’s Analytics also painted a picture of an improving, if lopsided, jobs market recovery. Although the 214,000 jobs created beat expectations, all but 6,000 of those positions were in the service sector.

Although a significant number of these jobs were in high- and middle-wage jobs like healthcare and construction, the Labor Department figures showed that low-paying industries like retail and restaurants did much of the heavy lifting.

“When you see a total of roughly 90-plus thousand jobs added in retail and food and drinking establishments … that helps to tell the story,” Hamrick said. (Those two sectors alone accounted for 95,000 of the new jobs added in February.)

Economists say the low price of oil has influenced this shift in two ways: Paying less to fill their gas tanks or heat their homes this winter has given Americans more money to spend at stores and restaurants.

“The low cost of gasoline and heating oil and natural gas are, I think, a big part of the reason for the big uptick in service jobs,” said Mitchell Goldberg, president of ClientFirst Strategy. “It takes a while to add up. We’re starting to see some of that money get spent more freely."

It’s a double-edged sword, though. In pockets of the country where energy is the dominant industry, layoffs in shale production or coal mining have a spillover effect on the rest of the local labor market.

“The unfortunate thing is people are going to go from a $75-an-hour job in the energy sector to a $9-an-hour job in the restaurant sector,” Goldberg said.

“These are not, frankly, the kinds of jobs you want your child with a college degree to be aiming for,” Hamrick said. “These are not the kind of jobs we envisioned in a better future.”