Nearly every recent survey asking Americans about their most pressing concern points to the same answer: a job. People are upset about taxes, politics, deficits, and wars, but until you can clock in five days a week and get a paycheck every other Friday, almost nothing else matters.
The good news: Jobs are starting to come back. About 3.3 million more Americans are working today than were just two years ago. That's great from a social perspective. People are going back to work and regaining dignity. Let's hope it lasts.
But even if it does, it might not be enough to fuel a strong recovery. What drives the economy isn't necessarily jobs -- it's people's ability to save and spend money. And even though jobs are coming back, average weekly hours and wages, by and large, are not. More people have jobs than did a year or two ago, but we're working fewer hours, for barely more money, than before the recession began.
The average private-sector employee worked 34.3 hours per week this year, according to the Bureau of Labor Statistics. Five years ago, the average workweek was 34.7 hours long.
That might sound like a small difference, but it adds up fast. Working more hours means bigger paychecks, which means more saving and spending, which drives economic growth -- just like adding new jobs would. According to UBS economist Sam Coffin, every one-tenth of an hour increase in an average private-sector workweek is the equivalent of adding 320,000 jobs. So if employees were working the same number of hours today as they were five years ago, the increase in spending would be like having an additional 1.3 million people employed -- enough to push the unemployment rate well under 8%.
Then there are wages. From the end of World War II through the late 1990s, average real (after inflation) hourly earnings increased 1.8% a year, and growth coming out of recessions was usually stronger than that. Not this time. Average real hourly earnings have been essentially flat over the last several years. If wage growth followed its historic growth rate from 2009 through today, the average worker would be earning almost $1 an hour more than they are now. The additional spending that would generate is the equivalent of some 2 million new jobs in today's economy.
All of this underlines something important about today's jobs market: A disproportionate number of jobs being created are for low-wage, part-time work. According to a recent Bloomberg Briefing, 41% of jobs created since 2010 are from "low-wage" sectors like retail and hospitality, even though such sectors only make up 29% of the total labor force. When government job losses are factored in, 70% of all job gains in the last six months came from low-wage sectors. In March, the notoriously low-wage restaurant and food-service industry added 37,000 of the 120,000 total jobs created for the month. "Administrative and waste services" made up another 15,000 of the total (though month-to-month figures can be murky).
Measured by the number of jobs alone, our employment recovery has been extraordinarily weak. But, when you factor in the quality and pay of the jobs that are bouncing back, it's been downright abysmal. When it comes to spending and stimulating the economy, creating 3.3 million new jobs today might be the equivalent of several hundred thousand jobs in years past. That's a dark thought when thinking about our future.
But here's what's amazing. Even though unemployment is still high and new jobs are mainly low-wage gigs, total consumer spending growth has been strong. Retail sales boomed over the last two years, and are now some 9% higher than before the recession began. Real (inflation-adjusted) personal consumption expenditures are now easily at an all-time high, some $200 billion a year more than before the recession, and should hit a new high in per-capita terms this year. Retailers from all ends of market -- from Wal-Mart (NYSE: WMT ) to Tiffany & Co. (NYSE: TIF ) -- have done well over the last few years given any economic environment, let alone a literal doubling of the unemployment rate.
And all of this, mind you, happened as the personal savings rate rose and household debt fell.
So there's a paradox. As unemployment increased and Americans saved more money -- and new jobs centered around low-pay, low-hour work -- we actually kept our wallets open and spent a good amount of money. Something doesn't add up. How did it happen?
The answer might be more complicated, and frightening, than you think. We'll explore it in the second part tomorrow…