There is a slowdown in the US labour market.
The number of jobs added in each of the previous three months was under 200,000. The unemployment rate has increased by 18 months. In July, the number of job opportunities reached a two-year low.
And now, job-hoppers—some of the biggest winners from the pandemic-era labour market—are witnessing an erosion of their bargaining power.
Bank of America economists under the direction of Michael Gapen observed in a note to clients on Friday that income improvements for job changers are currently just marginally higher than those for individuals who remain in their existing positions.
According to data from the Atlanta Fed, the three-month average of annual salary increase for job switchers fell to 5.6% in August from 8.5% in July 2022 and was only marginally higher than the 5.2% wage growth seen by those who did not change employment last month.
August saw a decline in overall salary growth to 5.3% from a peak of 6.7% in the same month last year.
The firm stated that “the moderation in wage inflation appears to be primarily driven by wage growth for job switchers.” The wage difference between job changers and job keepers, which normally widens as labour markets tighten, reached a record high of 2.8 [percentage points] in August 2022. The fact that it has now dropped to barely 0.4 [percentage points] indicates that both labour demand and job-hopping are slowing down.
The company also pointed to the decline in the quits rate from the JOLTS report from the previous week as evidence that the job market is less dynamic for people looking for new chances.
The details of the participation increase portray a picture more compatible with the less dynamic labour market implied by decreasing salaries for job-hoppers, despite the fact that some analysts described last week’s increase in the unemployment rate as a “good” increase because this upswing was driven by greater participation.
“The increase in participation was not driven by an increase in labour force entries, but rather a decline in labour force exits,” stated Preston Mui, an economist at Employ America, in a blog post on Thursday. Additionally, a rise in the number of people entering the labour force while unemployed does not always signify a healthy labour market.
The monthly jobs report divides the population into three fundamental groups: those who are employed, those who are seeking for employment, and those who are not.
As Mui pointed out, if people switch employment or other life situations suddenly, like retiring or taking a break, the government’s monthly jobs report may frequently overlook the change in a worker’s status.
Since the pandemic started, the labour market has been extremely active, with demand for employees outpacing supply on a regular basis, preventing workers from registering as unemployed and looking for work. Thus, the jobless rate dramatically decreased and reached multi-decade lows.
However, as the labour market weakens, more people in between jobs seem to be spending more time looking for work and taking longer to completely leave the workforce after losing their jobs.
Actually, the number of people who joined the labour force in August was comparable to the number who joined in July, according to Mui. The major difference between August and July was the number of people who left the labour force, particularly employed people. Maintaining current workers in the labour force as well as recruiting new ones are key components of high labour force participation.
This increase could be caused by fewer retirements, a delay in recording previously laid-off workers who are still looking for work, or a number of other variables. Mui also advises against making too many inferences from one month’s worth of data worker flows due to the magnitude and complexity of the monthly jobs report as well as the upcoming modifications to this data.
According to Mui, overall employment, which slowed over the summer but is still at its greatest levels since the epidemic, is the best sign of the state of the labour market. “While employment rates are still high, the pace of increase has slowed down,” noted Mui. “Clearly slowing down, but still strong, is the labour market.”
However, for a Federal Reserve that is still committed to achieving a “better balance” in the labour market, a decrease in wage growth and a change in how easily workers move around suggest that the institution is making headway towards this objective. In addition, in returning inflation to the 2% target.