Wage Increases Buoy Labor Force, Provide Access Up The Property Ladder

Manufacturing jobs posted higher numbers, and wages increases provided high points in the June 2018 report from the Bureau of Labor Statistics.

When it comes to buying a home in hot North Texas markets, what’s holding a lot of buyers back — besides inventory — is income. With so much of a recent graduate’s paycheck going toward exorbitant student loans, and with many families making the tough choice of forgoing homeownership so one parent can stay home with young children, income stagnation is a huge issue. 

So it was heartening to hear that after months of slow-to-zero wage growth in the US, now nine years removed from the Great Recession, that non-farm payroll got a significant boost. Tempering the good news was a contraction in the retail industry, driving up employment to 4 percent.

Graphics: United States Bureau of Labor Statistics

But what does this mean for workers? Economist Evan Kraft explains:

“… the increase in the labor force confirms suspicions that we have not reached full employment yet. It has been difficult to gauge whether many of those not seeking work would be willing to look again or to accept jobs.

Long-term demographic trends have been lowering the employment-population ratio since 2000, but the Great Recession accelerated the downward movement. It now seems clear that a good chunk of the decrease actually represents people who can return to work.

This is good for these individuals’ financial position, for the total output of the economy and for the government (fewer people relying on government transfer payments).

Additionally, the increase in the labor force suggests an answer to a key puzzle of the recovery: the slow growth of wages. If there still are people out there who answer help wanted ads, employers do not feel so much pressure to raise wages just to keep their businesses producing at the desired level.”

That’s the key right there. Slow wage growth and employers holding out for someone to fill a spot at a lower wage rather than attracting a different pool at a higher pay rate is driving the stagnation. But more educated parents returning to the labor force, combined with people continuing to plug away at “Help Wanted” ads, has increased the labor pool substantially, according the the Wall Street Journal.

Katie Garrison, 36 years old, is among those finding opportunities. She was out of the labor force for six years while caring for her young children. Last month, two weeks after she started searching, she was hired as a part-time government attorney.

“I was expecting it to be months and months,” Ms. Garrison said. “It was actually easier this time to get a job than any of us expected.”

New entrants to the labor force—be they parents, recent graduates or those previously frustrated by their prospects—have caused the civilian labor force to grow by an average of about 250,000 workers each month this year. That is the best six-month stretch of Americans entering the labor market in more than two years. In June, the share of American adults working or looking for a job rose by 0.2 percentage point to 62.9%. The gain runs counter to the longer-running trend of an aging population that is less likely to work.

And while retail jobs took a hit last month, growth in the healthcare sector is promising. More than 25,000 jobs were added in healthcare, with professional and business services adding 50,000 jobs. Manufacturing jobs grew by 36,000. 

 

So what does increased labor and higher wages do for homebuyers? Realtor.com chief economist Danielle Hale offers insight:

“Even though the unemployment rate ticked up for the first time since August 2017, today’s job report shows wages were up 2.7 percent. Meanwhile median home listing prices were up 9 percent in June from a year ago. Although wage growth is not too far off its highest point in the recovery, home prices continue to woefully outpace wage increases.

If the unemployment rate continues to remain low, companies may continue to push salary increases which could offer some relief for home buyers. There are more than 15 percent fewer entry-level homes under $200,000 on the market this year than last year. In contrast, there are slightly more $350,000 plus homes on the market than last year. If raises help buyers reach beyond entry-level homes, it could lead to a better match up of home shoppers and available homes.”