One of the recurring themes in Obama's final State of the Union address was describing the strength of the economic recovery as witnessed by the number of job gains over the past 6 (if not exactly 7 [5]) years, clearly a purely quantitative metric. There was no discussion of the qualitative component of these job gains for one simple reason: as we have explained for years, the bulk of new labor has gone to undereducated, minimum wage (and often part-time) workers.
We have dubbed this the "waiter and bartender" recovery for a reason that becomes immediately clear when looking at the chart below.
[6]
We have also gotten tired of reiterating all of this (we do so every month when the BLS released its latest jobs data that just happens to lack the biggest missing piece in the Fed's "recovery" - wage growth).
So today we give the podium to the ECRI's Lakshman Achuthan who explains it so well even a US president would get it.
Fresh Data: Cheap Labor
[7]from ECRI [7]
The sustained decline in the official jobless rate – now near the Fed’s estimate of “full employment” – is a misleading indicator of labor market health.
Indeed, the stagnation in nominal wage growth is consistent with the weakness in the employment/population (E/P) ratio. After dropping to three-decade lows in the wake of the Great Recession, the E/P ratio has barely improved since the fall of 2013, reversing only a quarter of its decline from its pre-recession highs. Furthermore – as a breakdown of the E/P ratio by education level shows – even this modest improvement is illusory.
Since 2011, when the E/P ratio for those with less than a high school diploma bottomed, that metric has regained almost two-thirds of its recessionary losses (orange line in chart). But the E/P ratio for high school or college graduates – i.e., eight out of nine American adults – has not recovered any of its recessionary losses, and has barely budged in four years (purple line).
This data underscores how the jobs recovery has been spearheaded by cheap labor, with job gains going disproportionately to the least educated — and lowest-paid — workers, many of whom have to work multiple jobs [8]to make ends meets.
This is scarcely supportive of Janet Yellen’s description of a “much healthier” consumer in justifying the Fed rate hike.
