Something to celebrate this Labor Day: The state of American jobs and workers

As we approach Labor Day this year, the American worker truly has something to celebrate. The U.S. unemployment rate as of July was 3.9 percent, the lowest it has been in over 30 years. There are more Americans working today than at any other time in the history of our country, with over 130 million employed. In fact, there is an argument among many economists that the economy has already surpassed full employment, a condition that many say could lead to inflation. Too much of a good thing does not automatically mean a bad thing is on the horizon.

For one thing, labor force participation rates, which had reached historical lows over the past three decades, have started to improve. That is to say, people who have sat out the labor market and not been included in the labor force are now coming into the job market — although more slowly than the top line numbers would tend to indicate. In a low unemployment environment, some employers are willing to train even unexperienced and under-experienced candidates due to shortages of available workers. This is happening most notably in the transportation and logistics sectors, where an ever-increasing shortage warehouse workers and truck drivers has been somewhat of a drag on overall economic growth. The residential construction sector, on the other hand, is seeing some signs of slowing after a blistering pace of growth over the past decade. The cheap financing that drives investments in housing construction is coming to an end, with the Fed signaling continued interest rate hikes in its attempt to stave off creeping inflation. 

{mosads}The challenge ahead, of course, is how to continue to enhance American growth and prosperity, while at the same time staving off inflation. Inflation hurts workers because it means they have to produce more work in order to enjoy the same purchasing power. It can become a vicious cycle as workers feeling inflationary pressures in turn demand higher wages, which further drive up prices in the short run. What we want as a country is not just growth but sustainable growth, distributed more or less evenly across the labor force. It’s a tall ask, but in order to achieve political stability, policy-makers have got to grasp not only overall growth but also how that growth is distributed.

This is critical especially now. Over the past decade since the great recession, the lion’s share of the nation’s economic growth has gone to the 1 percent: the business and investing class. Part of this has to do with how the tax system in our country is structured. It favors investment income and disfavors earned income. Much of the growth in the economy has therefore been a function of rent-seeking behavior, driven to a large part by the easy money policy of the Federal Reserve. What we need now is a corresponding fiscal policy that can help drive more of the benefits of growth to the American wage earner.

The Trump administration has already taken some steps in this regard. Firstly, it has lowered taxes for all American income earners. People now have more money in their pockets and feel more optimistic about their economic prospects. Consumer confidence popped higher in August to the highest level since 2000, as the stock market reached record highs and unemployment dropped. This sense of confidence may be tempered to some extent, though, by the diminishing purchasing power around inflating items such as food and rent.

Rental costs in the areas experiencing the highest employment growth continue to outpace wages, and home prices outstrip wages more than at any time in American history. Rising confidence combined with more rapidly rising costs does pose a conundrum for policy-makers. The very levers of consumer confidence — job growth, income growth and stock market performance — are to a certain accent performing as limiters on actual economic advancement in a tight labor market.

The Trump administration has sought to temper some of the inflationary pressure on housing investment by limiting the tax deductions on homes at higher price levels. Over time, this should help to drive investment into more affordable housing — but we are not certain as to how long it will be until this takes effect. Investments in land and real estate financing tend to lag home construction significantly. 

On a final note, employment among African-Americans is at a historic low. In fact it has more than halved from an unemployment rate of 16.8 percent in March of 2010 to 6.6 percent in July 2018. While there is much to celebrate about this, there are a few cautionary notes.

The first is that the African-American unemployment rate was the slowest to reverse among all ethnic groups — meaning African-American workers are just coming on line, at the point where many economists believe we may have exceeded full employment. One wonders whether the last to enter will be the first to leave should an economic downturn occur in the short term.

Secondly, African-American unemployment continues to lag significantly below both white unemployment (3.4 percent) and overall unemployment. Coming from traditionally underemployed to almost fully employed at the end of a market cycle is proof that a rising tide can indeed float all boats — but will it be enough to drain the boats that went under water during previous downturns?

The full-employment labor force participation rate is particularly low this time around. In 2000, for example, with 5.7 percent unemployment, the labor force participation rate hovered around 66 percent, according to data from the St. Louis Fed. This time around, labor force participation at full employment is a mere 62.5 percent. So, while more people are working than ever before, more working-age folks are not working than ever before. The question is, why isn’t the economy picking up the slack? 

Some of these questions are difficult to answer with any degree of clarity, as they will only become apparent in hindsight. The upside is that we are thankfully at full employment in this country. Wages, however, continue to lag behind both real and inflationary growth. This is a challenge for policy-makers going forward especially as the business cycle begins to contract. For now though, the American worker can definitely put one in the winning column.

Armstrong Williams (@ARightSide) is author of the book “Reawakening Virtues” and served as an adviser and spokesman for Dr. Ben Carson‘s 2016 presidential campaign.