Slowed growth threatens continued wage gains

by Jared Bernstein

Low overall unemployment rates persisted through the third quarter of 2000, and the tight labor market has meant continuing gains for less-advantaged workers. Nevertheless, there are some signs that recent Federal Reserve interest rate hikes have slowed the economy. For example, both gross domestic product and productivity rates grew considerably more slowly in the third quarter of 2000 than in previous quarters, and the growth of payroll employment has also slowed in recent months. If the tight labor market begins to loosen, then these effects may show up first among less-advantaged workers.

In fact, there is some early evidence that gains made by low-wage minority workers may be slowing in comparison to recent quarters. This is worrisome in that these groups of workers (and job seekers) only began to catch the economy’s rising tide in the latter 1990s; these positive trends have not lasted long enough to lift these workers much beyond where they were at the last business-cycle peak in 1989.

The first row of Table 1 shows that the quarterly unemployment rate has edged downward from 4.2% one year ago to 4.0% in the third quarter of this year, the lowest level for this indicator since the fourth quarter of 1969. Over the course of the last year, the rates for both males and females have ticked down by two percentage points, to 3.9% and 4.2%, respectively. This would suggest that the labor market is operating at or near full employment (i.e., most of those seeking jobs in the workforce are finding them).

Table 1: Unemployment and underemployment

But it is harder to make this claim for less-advantaged workers, such as younger workers with no more than a high school degree, whose unemployment rates, while also trending downward, are more than twice the overall rate (e.g., 11.1% versus 4.0% in 2000:3). The unemployment rates of minorities are more than five times the national average.

Underemployment rates, which add discouraged and marginally attached workers to unemployment counts (see the online data appendix for a complete definition), appear to have fallen for each group shown in Table 1, but only the decline for Hispanics is statistically significant (i.e., greater than 1%).

Table 2 focuses on the hourly earnings of low-wage workers (defined as 20th percentile earners), those with no more than a high school degree, and those with a high school degree and entry-level experience (1-10 years). Hourly wage growth appears to be positive over the past quarter (see the percent changes, 00:2-00:3), but, here again, only changes greater than 1.0% are statistically significant, so only 20th percentile males experienced a significant increase. Over the past year, however, real wages have grown significantly for low-wage males and entry-level females.

Table 2: hourly wage trends, low-wage workers

Table 3 shows recent changes in real wages by gender, race, and education. After remaining flat over the first half of the year, average hourly wages grew significantly in the third quarter, particularly for males. Similarly, the gain of 2.4% over the last quarter for the median female worker appears quite large, but this increase simply returns those earnings to the seasonally adjusted level reached in 2000:1. Unusually large quarterly movements such as these should be attributed to the erratic movements that sometimes appear in quarterly wage data. Over the past year, the median female wage is up a much smaller 0.8%.

Table 3: wages by gender, race, and education, 1999 dollars

Although the 0.9% wage increase for African American high school graduates over the past year is statistically insignificant, Figure 1 shows the overall trend is an upward one. Growth in real wages for all groups began around 1996 and has continued through the third quarter of 2000 for African Americans. The Hispanic trend has clearly flattened in recent quarters (see the 1.1% decline shown in Table 3). Note also that the real wage levels are either at or below their 1989 levels, which was the last business-cycle peak. Thus, while recent gains are clearly a welcome reversal of the longer-term negative trend, it is important that the gains are sustained long enough for these workers to exceed past levels.

Figure 1: Quarterly wage trends by race, HS graduates

The wages of those with college degrees or more education (last row, Table 3) grew faster than those of high-school-educated workers over the past year, suggesting that it is these higher-paid workers who are driving the increase in average hourly wages.

The trend-adjusted unemployment and underemployment rates of young job seekers with at most a high school degree are shown in Table 4. These rates reflect small and generally insignificant gains in unemployment over the past quarter, and even over the past year. The overall rate for these groups is essentially unchanged over the past three quarters. Exceptions are Hispanic and female underemployment, which both fell about two percentage points.

Table 4: Unemployment and Underemployment for Persons with High School education or Less, 18-25

In every quarter shown in Table 4, the unemployment rates of young African American workers with at most a high school degree are consistently more than two-and-a-half times that of white workers. Hispanic unemployment rates are about half that of blacks, but higher than those for whites.

Turning to the longer-term trend in minority unemployment rates, Figure 2 shows that these rates peaked (or, in the case of Hispanic females, plateaued) in the early 1990s. For African American males and females, jobless rates at that time stood at around 30%. Unemployment then fell consistently for females throughout the recovery (male gains were less consistent) and stood at about 24% for males and 21% for females.

Figure 2: Quarterly unemployment trends for blacks and hispanics age 18-25, high school or less

Figure 2 also reveals that the declining trend for African Americans appears to have flattened in the last few quarters. While it is too early to be certain, this may be a result of the Fed’s recent strategy to slow the economy. If the Fed’s rate hikes are intended to slow labor market growth, then the effects would appear first in these series, since these populations are most sensitive to changes in labor demand. This is particularly unfortunate for young black males, whose unemployment rate is about where it was at the last business-cycle peak of 1989.

Numerous recent economic reports focusing on key macroeconomic indicators clearly point to a slowing, though still strong, economy. Gross domestic product and productivity growth were considerably slower in the third quarter relative to the second in 2000, and while the unemployment rate remains at a three-decade low, the last few monthly employment reports have recorded a slowing in the growth of payroll employment. Wages and compensation, however, continue to grow at stable rates.

The data in this report suggest similar trends for
low-wage and less-advantaged workers. Unemployment rates for these workers, after falling much more steeply than the overall rate in recent years, have been holding fairly steady over the last few quarters and may have even ticked up slightly for black males. Wage gains continue apace but do not appear to be accelerating, especially when examined over the year thus far. Also, the hourly earnings of low-wage workers are only now returning to their 1989 levels.

These trends suggest that the significant and long-awaited progress made by low-wage workers in the late 1990s may be getting derailed by the Fed interest rate hikes. The last of these hikes was implemented in May 2000, and their effect on the labor market’s most vulnerable workers won’t be felt until the coming months.

Vol. 2, No. 1
Third Quarter 2000

The Quarterly Wage and Employment Series, or QWES, provides information on aspects of the labor market that are typically absent from the more aggregate government statistical series. By focusing on unemployment rates, underemployment rates, and hourly wages by race, gender, occupation, and education level, it allows an examination of trends relevant to the low-wage labor market. It also provides information for examining trends in labor market data typically missing from other data sources, such as hourly wage growth of median workers and changes in wage and employment inequality.

Danielle Gao

Joseph Procopio

EPI would like to thank The Rockefeller Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, and the Joyce Foundation for their support of this project.

For more information, see the data appendix.

Check out the archive for past QWES.