Total nonfarm employment in America rose by 49K payrolls in January, according to a report out this morning from the Bureau of Labor Statistics. That was well below the consensus forecast and the November and December figures were revised lower by a net 159K payrolls. Altogether this means that roughly 55 percent of the 22 million jobs lost during March and April of last year have been recovered to date. Although an impressive rebound this clearly shows that there is still a lot of ground left to make up before a full employment recovery is actually achieved. Beyond general payrolls growth another labor market component to monitor going forward is compensation. However, the popular average hourly earnings figures released as a part of this monthly report have provided more noise than signal lately due to the composition of job losses during the pandemic, i.e. predominately lower-paid service-sector workers being let go. Moreover, Americans with a higher level of educational attainment (and compensation) were significantly more likely to be able to continue working throughout the crisis, especially in “non-essential” occupations that can be performed remotely, which in turn skewed the recent average earnings numbers higher.
The Labor Department’s separate employment cost index (ECI) therefore remains the alternative to rely on while pandemic-related distortions continue because this metric looks at how companies are adjusting pay for a particular job while holding constant the industry and occupational categories. The latest update of this gauge showed that overall wage and salary costs rose 0.9 percent for private sector workers in the fourth quarter of 2020. That was almost double the increase seen in Q3 2020 and therefore another confirmation that outright pay cuts this crisis have not been anywhere near as widespread or as severe as many economists had feared. Continued talent shortages are playing a role here, in large part due to schools remaining closed and limiting the prime age labor supply, and any additional (natural) upward pressure on wages and salaries therefore seems unlikely until the vaccine rollout is complete and the economy can fully reopen. As for benefits, the cost growth rate for this important compensation component has strengthened slightly over the past year. A key driver of the recent firming in benefits expenses is sick pay, which saw outlays climb 9.8 percent during the past twelve months, the largest one-year increase since 2002. This was to be expected given the unique economic disruptions caused by COVID-19, but it would not be surprising if even after the coronavirus crisis fades this specific benefit continues to grow in popularity as more workers seek protection against the possibility of some new pandemic or other widescale lockdown event in the future.
Sources: Econoday, U.S. DoL, FRBSL