The US economy is less than one year away from breaking the record for the longest expansion in the country‘s history. Despite the length of the recovery from the Great Recession, data from the middle two quarters of 2018 suggest the economy is still growing with considerable strength. It is on track to grow around 3 percent for the year, about an entire percentage point above estimates of its maximum sustainable rate of growth.
This strength is reflected in the job market, which continues to expand at a robust clip. In the last five years, the economy has added an average of 211,000 payroll jobs per month. Over the last 12 months, the average job gain has been the same. Fewer than 4 out of 100 workers are unemployed, and that ratio is expected to fall even lower.
That’s the view from 30,000 feet. What happens when you zoom in and focus on specific groups? By some important measures, the labor market actually looks better for low-wage workers with relatively fewer skills than it does for other groups.
Over the past quarter century, the average unemployment rate for workers who did not complete high school is about 9 percent. In 2018, the average unemployment rate for this group is 5.5 percent, or about 60 percent of the long-term average.
Workers in other education groups are also outperforming their historical rates of joblessness, but not as dramatically as high-school dropouts are. The long-term average unemployment rate for workers with a bachelor‘s degree or higher, for example, is 2.8 percent, while their 2018 average is 2.1 percent. Their labor market is tighter than normal, for sure -- but by this measure, it’s not as tight as the market for the least-skilled workers.
To put a human face on these statistics, consider that at the height of the Great Recession, more than 1 of every 6 workers without a high-school degree was trying unsuccessfully to find a job. Today, only 1 in 18 is in that situation.
Earnings tell a similar story. The median usual weekly earnings for workers who didn‘t finish high school were $556 in the third quarter of 2018, up 6.5 percent from one year before. In the third quarter of 2017, weekly earnings for this group grew at 3.6 percent compared with the year prior.
Using a more sophisticated statistical methodology, economists at Goldman Sachs also find that for the last several years, wages in the bottom of the distribution have been growing faster than those at the top.
Particularly vulnerable workers also seem to be faring better than they have in many years. In January 2014, 16 out of every 100 people with a disability had a job. Today, the figure is close to 20. That’s a whopping 26 percent increase in the last six years.
When the unemployment rate is high, employers can be more selective about applicants they interview and hire. But as the labor market gets tighter, employers become more flexible.
Anecdotes are plentiful. This past April, for example, the New York Times reported that restaurants were coping in part by “hiring former prisoners as kitchen assistants.” Burning Glass Technologies, a company that analyzes the labor market, reported in January that employers were less likely to require background checks in their job postings.
All this illustrates that the best jobs program for low-wage and hard-to-employ workers is a hot economy. But what does this mean for monetary policy?
The Federal Reserve faces a difficult choice. Along with the very low overall unemployment rate, the rate of consumer price inflation is approaching the Fed’s target and will likely continue to rise. But pumping the brakes on the economy to keep inflation at bay -- by repeatedly raising interest rates -- could damage the prospects for the economy‘s most vulnerable workers.
Of course, it’s not as simple as that. Monetary policy operates with unpredictable lags, and the Fed is right to be concerned about the harm inflation inflicts. If it doesn’t raise rates quickly enough and inflation takes hold, the measures required to quell rapidly rising prices would do no favors to the economy’s most vulnerable workers.
I have long argued that the Fed should wait at least until it sees the whites of the eyes of inflation before it pushes interest rates up to the point that economic growth is restrained.
Consider that last week we learned prices rose 1.6 percent in the third quarter, slowing from the last three quarters. And measures of inflation expectations are not overly troubling. Are we seeing the whites of inflation’s eyes? When the Fed decides in December whether to raise interest rates again, it should stare long and hard. And not blink.
Michael R. Strain
Michael R. Strain is a Bloomberg Opinion columnist. -- Ed.