2 ways jobs and pay didn’t make sense before the pandemic that are now ‘unwinding’, according to a top economist

economist william spriggs with janet yellen
U.S. Federal Reserve Chair Janet Yellen (L) greets Howard University Economics Professor William Spriggs (R), who serves as chief economist to the AFL-CIO, as she arrives to deliver opening remarks at a summit on diversity in the economics profession at the Federal Reserve headquarters in Washington October 30, 2014.

  • Right now, a whole lot of jobs are open – and a whole bunch of workers are quitting.
  • But the labor market being weird is nothing new, according to economist William Spriggs.
  • The current shifts could be an ‘unwinding’ of more than a decade of declining wages and an aging workforce.
  • See more stories on Insider’s business page.

The labor market is weird right now.

A lot of people remain unemployed, even though the number of job openings is high and businesses are desperate to hire. Americans that do have jobs are quitting at record-breaking rates. In other words, a major reshuffling is going on in the labor market.

As it turns out, a confusing labor market is nothing new, said Dr. William Spriggs, an economics professor at Howard University and chief economist at the AFL-CIO. Spriggs told Insider that low-paying jobs and older people remaining in the workforce were both surprising features of the last 20 years of the American economy. And what seems weird right now is actually just an “unwinding” of these two trends giving way to higher-paying jobs and younger workers.

The labor shortage is actually healing major dysfunctions in the 21st century economy, Spriggs explained.

Low-wage jobs rose and real wages declined

Since the early 2000s, the number of low-wage jobs grew, even as people became more educated. (Brookings’ defines “low-wage” as two-thirds of their area’s median wage, or less.)

A Brookings analysis from 2019 found that 53 million Americans work for low wages – which comes to 44% of workers ages 18 to 64. And it’s not just teenagers; more than half of those low-wage workers fall between the ages of 25 and 50.

“It was very hard to explain how, in the 21st century, we gained so many low-wage jobs,” Spriggs said.

Though pay growth picked up in the years preceding the pandemic thanks to states raising minimum wages above the federal level of $7.25 an hour, wages have declined over the past five decades.

Now some of those past patterns are “unwinding,” said Spriggs. He attributes some of that to more consistent hours in some sectors, like those benefitting from the rise of online shopping. Workers – especially women, who have had a rockier recovery – are flocking to industries like construction, transportation, and warehousing.

“With this transition going on, the workers who are employed are finding ways to get jobs in the sectors that are expanding and hiring,” Spriggs said.

Older workers stuck around longer than expected

The other “really strange thing” about the 21st century labor market was that the number of workers over age 50 has been on the upswing, and participation for people under 25 fell. Spriggs pointed out that there was much talk about the 21st century being the “age of the computer.”

“I think everybody thought that people over 50 will continue to retire and people under 25, this would be the best cohort ever if you were young, because you will have to backfill all those jobs,” he said.

William Spriggs headshot.
Dr. William Spriggs.

Instead, younger workers were unemployed at higher rates than older workers after the Great Recession, and were then hit harder by COVID job losses.

The pandemic might have evened out generational representation as a wave of older workers opted (or were pushed) into retirement over COVID fears, layoffs, and bleak industry outlooks. The Retirement Equity Lab found in an October report that, for the first time in 50 years, workers over 55 were unemployment at higher rates than the younger cohort.

After teen unemployment dropped significantly in May, it leveled out in June, coming in close to pre-pandemic levels. Insider’s Ayelet Sheffey and Madison Hoff reported that some expected teens would step in and fill the labor shortage, but June’s jobs report seemed to disprove that theory. Spriggs agrees that “there’s no evidence of that so far.”

The current labor market rollercoaster could create lasting change beyond temporary signing bonuses and other measures employers are using to lure in workers.

“Maybe because of the shift in demand, we finally shift to some of these other jobs that aren’t necessarily higher paying,” Spriggs said, but ones with more hours. That’s a potential advantage for workers: “The annual pay is much higher.”

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More people are telling their jobs to ‘shove it’ amidst record quits

A sign at a McDonalds Drive-Thru explaining why a worker quit their job
The sign was apparently posted in Louisville, Kentucky.

  • The “take this job and shove it” indicator is high due to lack of childcare, covid fears, and migration.
  • DataTrek looks at how many job separations come from quitting, and told Insider “employers are not raising wages enough.”
  • But it may come down soon as schools reopen and more people reenter the labor force.
  • See more stories on Insider’s business page.

In May 2021, workers were still quitting their jobs in droves – yet another strange facet of the slowly recovering economy.

According to recently released data from the Bureau of Labor Statistics, 3.6 million workers quit their jobs in May, a month when there was one available worker for every job open (and there were 9.2 million jobs open). In April, the quit number was a record-breaking 4 million.

DataTrek Research has its own tracker for how many of the job separations in a month were from quits – the “take this job and shove it” indicator. That indicator reached its second-highest rate recorded in May 2021, with 67.8% of job separations driven by quits.

This number was higher in the particularly quit-heavy leisure and hospitality industry, Axios first reported; it came in at 76.4%.

The number is still slightly lower than April’s record-breaking high of 68.8%. Jessica Rabe, DataTrek’s cofounder, told Insider that quits are still driven by reduced access to childcare and fears of infection. Also significant: Workers relocating to the suburbs from urban centers.

But quits – and the “take this job and shove it” indicator – may have peaked in April. Schools are set to reopen in the coming months and enhanced unemployment benefits ending could get more people back in the labor force.

“We think the bulk of people disenfranchised by their jobs have quit by now, given this difficult nature of the pandemic over the last year,” Rabe said. “We think the only caveat is if the Delta variant or others do take off and we get another raft of workers in customer service jobs quitting their jobs again, even with higher wages, but it won’t likely be as big as the first wave.”

Yes, wages are on the rise

That reading comes as leisure and hospitality workers say they’re not going to return to their previous positions. Insider’s Grace Dean reports that a third of hospitality workers said in a Joblist survey that they won’t ever return to the industry.

Those respondents want a new work experience, along with higher wages and better benefits. That’s not to say that leisure and hospitality isn’t growing: The sector made up 40% of jobs gains in June, according to the Bureau of Labor Statistics, and added 343,000 payrolls. Wages also grew for leisure and hospitality workers at a breakneck speed, soaring 7.1% in the past year.

Even so, the quits rate in leisure and hospitality was 5.3% in May. That could be due to those wage hikes raising low wages to just slightly less low. In June, the average hourly earning for nonsupervisory private employees was $25.68. It was nearly $10 lower for leisure and hospitality workers, coming in at $16.21.

Those conflicting numbers show a strange new pandemic trend: High unemployment, coupled with high job openings. Generally, unemployment is driven down as job openings go up – since people are presumably filling those roles. That doesn’t seem to be happening here.

“The large labor shortage and elevated quits rate also shows employers are not raising wages enough,” Rabe said, “which is constraining hiring.”

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The number of people who are unemployed because they quit their jobs is at its highest point of the pandemic

Now Hiring sign
A customer walks by a now hiring sign at a BevMo store on April 02, 2021 in Larkspur, California.

  • In June, 942,000 people were unemployed because they voluntarily quit, a pandemic-era high.
  • It reflects labor-market tightness, which is strange when 9.5 million are out of work.
  • Wages also ticked up in June, although they still remain relatively low for leisure and hospitality workers.
  • See more stories on Insider’s business page.

While the number of jobs added in June trounced expectations, another measure also paradoxically ticked up: More unemployed people said their reason for being jobless was quitting than any other month of the pandemic.

In June, 164,000 more unemployed people quit or voluntarily left their jobs, according to data from the Bureau of Labor Statistics, bringing the total number of so-called job leavers to 942,000 for the month. That latter figure is a new pandemic-era high for people who quit and remain unemployed.

It continues a trend of elevated quits throughout the last couple of months, showcasing that while recovery may be on the horizon, the labor market is still pretty weird.

Job vacancies reached record highs in April, according to BLS, a month when the total number of Americans leaving their positions hit a 20-year record: 4 million Americans quit their jobs that month. That data includes people who quit and found new jobs.

The number of people quitting might show that workers are still choosier about their jobs and work, especially as employers vie to lure them in with everything for $50 to show up for an interview to hiring bonuses. The number of quits also comes as 26 states move to end their participation in federal unemployment benefits, a measure that many governors explicitly implemented to compel workers back into the workforce.

Some workers had been “rage quitting” their positions during the pandemic amidst poor working conditions and low wages, Insider’s Áine Cain previously reported.

Wages also ticked up in June, potentially indicating that employers are being forced to increase wages to lure in and retain workers. The average hourly earnings for all workers rose by 10 cents to $30.40 in June, following increases in April and May; in fact, the jump between April and May marked the fastest rate of wage growth since 1983 (excluding a 2020 lockdown-driven spike).

For instance, leisure and hospitality made up a large chunk of gains in June, adding 343,000 jobs. That industry has seen consistent strong wage growth over the last few months, and just hit $16.21 in hourly earnings. It’s also an industry that saw elevated quits in April, before wages climbed up even higher. That could support claims that raising wages across the board might be one solution for bringing workers back.

Read the original article on Business Insider