November job gains beat expectations, as Wal S’yas (reversed Say’s Law) takes hold

December 6th, 2019 at 9:29 am

Payrolls rose by 266,000 last month and the unemployment rate ticked down slightly to 3.5%. Hourly wage growth for all private sector workers remained where it has been, up 3.1%, year-over-year, while the pay of lower-wage workers–the 82% of payroll employment that’s blue collar in factories and non-managers in services–has been trending up a bit, and was up 3.7% last month (a slight tick down from 3.8% in October). With inflation running around 2%, this translates into solid real wage gains for these workers. The stronger trend for lower-paid workers is also a reminder of who disproportionately benefits from persistently high-pressure labor markets.

The November jobs number of 266K was boosted by the return of almost 50,000 strikers due to the end of the GM strike. Thus, much like we discounted the loss of those workers in the previous month’s jobs report, we should discount their return (I discuss the trend in manufacturing employment below). Even so, our monthly smoother implies, if anything, there’s been a slight acceleration in job gains in recent months (the smoother averages monthly payroll gains over 3, 6, and 12-month windows, and thus smooths out the strike effect).

In tandem with the wage results, payroll gains of this magnitude suggest that the persistently high-pressure labor market is boosting labor supply at both the extensive and intensive margins, i.e., pulling people in and adding hours for incumbent workers. I often stress the positive wage effects of high pressure labor markets, but the supply effects are structurally important, as they imply the potential for increased economic capacity. Fans of economic theory will recognize this as reversed “Say’s Law.” That is, Say’s Law, which is now widely viewed as erroneous, argued “supply creates demand.” It appears more accurate to argue that demand–in this case, persistently strong demand for labor–creates (labor) supply.

A hugely important policy question is whether that supply lasts past the next recession. This will surely require employment-oriented policies to avoid last-hired, first-fired outcomes when demand eventually lags. Such policies include subsidized employment, training, and apprenticeship programs.

Turning to one key, and less favorable, recent sectoral development, many different data sources have shown weakness in manufacturing employment, driven by the trade war and slower global growth. What is sometimes not emphasized enough in this context is that both of these factors tend to put upward pressure of the US dollar. As trade economist Rob Scott pointed out in a recent op-ed: “The dollar has climbed 10 percent since the tariffs first took effect in March 2018, and has also risen 11 percent against the [Chinese] yuan in the same period. This lowers the cost of imports and raises the cost of U.S. exports…”

As the next figure shows (and note the figure smooths out the strike effects), there’s but a large deceleration in manufacturing job gains as the above-named factors have seriously dinged manufacturing activity.

The U.S. job market continues to post impressive job gains. While overall wage trends remain stalled, those of lower-paid workers serve as a reminder of one of the benefits of high-pressure job markets. At the micro-level, especially given low inflation, this means real paycheck gains for working Americans. At the macro-level, it means we can expect the American consumer to continue to fuel the already record-long expansion. Against this broadly favorable backdrop, Trump’s trade war is a clear negative, demonstrably hurting factory workers.



Things to like, not like, and to be unsure about re Sen. Warren’s M4A plan (along with a mea culpa)

November 5th, 2019 at 3:25 pm

Along with many others, I’ve had lots of things to say about Sen. Warren’s Medicare for All (M4A) plan, some positive, some negative, some head-scratchy. But because the issue is so politically loaded, both in terms of the Democratic primary and conservative antipathy toward this or any other idea that expands government’s role in health care, and also because of my association with VP Biden, it’s been hard to have a straight up policy discussion.

In a CNBC TV debate, for example, I was asked what I thought about how Sen. Warren’s numbers added up. I responded, “In terms of making the numbers add up — yeah, there are a lot of questions there, but in fact I think she’s done a very good job of focusing the debate on those questions.” Later, an article showed up without the last half of the sentence (“she’s done a very good job…”), leaving a pretty different impression of my view, I thought.

It’s hard to do nuance is this context, at least for me, apparently, so I decided to write down what I like, dislike, and am not sure about re the plan.

Things to like about Warren’s M4A plan:

–It’s a detailed policy road map. It’s not legislation, of course, but it’s probably got enough detail to write legislation around, making it the first time a presidential candidate has gone beyond the hand-waving we usually see around single-payer ideas in election cycles. Whether you like the plan or not, that focus clarifies the debate in a useful way.

–Its aggressive cost controls squeeze a lot of excess profits out of our bloated health-care-delivery system. Some experts who know a lot about this claim (like those at the Urban Institute) think she’s too optimistic on this front; that it’s unrealistic to, for example, score cuts to health care administration, drug costs, and the overall growth rate cost growth by the amounts her plan assumes. But she pushes each of these areas in the right direction, as must any serious health care reform plan.

–Reasonable folks will argue about the reality of how she gets there (as I’ll stress below), but she pays for the plan. She resists the magic asterisk (“payfors to come”) or the who-cares-about-deficits crowd.

–Though she is arguably again too optimistic about the amounts they’ll yield, many of her financing ideas are worthy in their own right, including the financial transaction tax, closing the tax gap (taxes owed but not collected), and welcoming immigration reform.

Things to dislike about the plan:

–To move the ~$9 trillion over 10 years that employers currently contribute to their workers’ health care, Sen. Warren’s plan has a kind of head tax, initially scaled to a bit less than employers are currently paying. That way, no one can claim the plan is a big burden on businesses right out of the gate. But as I (and Matt Bruenig) understand it, eventually this per-worker fee converges to a head tax that’s the same amount per employee in covered firms (with more the 50 workers). By itself, this would be a regressive tax for low-wage firms and workers, though a fulsome judgement requires factoring the distribution of all the other, progressive, aspects of the plan. If, however, I’m right about it, I expect team Warren to revisit this part of the plan.

[Note: I think the theory of the case for team Warren is that if you’re doing a head tax, you either converge to the average or you lock in the initial unfair distribution, where crappy-plan firms get an advantage.]

–The financing is structured to buy into the “not one penny in higher taxes from the middle class.” I grant that it’s easy for me to say, as I’m not running for office, but the idea that every progressive idea has to be financed by taxes solely on the wealthy is ultimately contrary to health democracy. No question, the top of the scale is the right place to start re financing, but Democrats must reestablish the norm of broader, yet still progressive, taxation. (Some may respond to this critique by citing the head tax, but as noted, I fear that’s a regressive approach.)

–David Leonhardt from the Times makes a fair point about the least popular aspect of M4A: the fact that it replace private coverage, most notably for the almost 160 million covered through employers. He writes:  “The biggest weakness of Warren’s approach is that it tries to bulldoze through the sizable public anxiety about radical changes to the health care system. Warren would not let people opt into Medicare, a wildly popular idea. She would force them to join.” M4A proponents stress the problems with such coverage, and I’m not suggesting that everyone of those 160 million loves their plan. But there are, in fact, relatively good plans out there and when it comes to health coverage, people are intensely risk averse. Much more thought must be given to transition or to alternative plans, like one I highlight below, that get to (or close to) universal coverage without ending private coverage.

Things I’m unsure about re the plan:

–I’ve written that one advantage of this M4A debate—now venerably reified—is that it potentially raises the public’s demand to plot a path to universal coverage, even if it’s by a less interventionist path, the path I myself view as preferable. From my recent Vox piece (italics added):

[The Urban Institute has scored] plans that look a lot more politically plausible to me and get to near-universal coverage for far less. Their analysis of a “single-payer lite” plan, which involves income-related cost-sharing but no premiums, less-comprehensive (but still decent quality) benefits, and no coverage for undocumented persons, costs half that of the “full-Bernie” enhanced plan. Remarkably, a public-option plan that requires more cost-sharing than single payer but significantly less than current law gets to near-universal coverage for less in additional federal costs than the Trump tax cuts ($1.8 trillion over 10 years for the plan vs. $1.9 trillion for the tax cuts).

But I readily admit that this is chin-stroking punditry with which reasonable people will disagree.

And while I suppose primary candidates must fight for votes, if I’m right about the above, then the Warren/Sanders approach is complementary to the more incremental Biden/Buttigieg approach. Like they say, “politics ain’t beanbag.” But attacking Warren for “raising taxes on the middle class” or abandoning the goals of Obamacare seems as false and counterproductive as attacking the more moderate candidates for not going all the way to M4A. All the D’s want to get to universal coverage, but they take different paths to get there.

–I’ve long thought that arguing the minutiae of health reform plans is somewhere between the Afghanistan and Hotel California of domestic policy debates, with no political upside. But given her I’ve-got-a-plan brand, Sen. Warren may consider this an unavoidable risk. Moreover, she may well be turning this view on its head: she’s sees an unjust problem, diagnoses it, and prescribes pretty granular solutions, with numbers and appendices. And based on her poll numbers, a lot of people like it!

–The likelihood of M4A in the near (the next Congress) and probably medium term (the Congress or two after that) is close to zero. If you pull back from the wonky discussions of how realistic the cost savings and revenue raisers are, the debate can sound like it’s between avid members of a fantasy football team. I argued above that this widens the potential policy landscape and creates a more incremental reform path but there’s a cogent argument that the political downsides to not delivering single payer won’t be trivial.

IN conclusion, a mea culpa: In the CNBC debate cited above, I made snarky comments about the plan and its payfors being unicorns. That was unnecessarily disrespectful to many who believe otherwise, to whom I apologize. I was really thinking about the last point re my perception of legislative realities, around which, ftr, there’s wide agreement. As I hope I’ve conveyed, I admire the progressive, aspirational energy around M4A. I just want to hear more about plan B. Don’t just tell us what you want to do were this a better world. Tell us what you believe you can do given realistic political constraints.

October jobs report: Robust job growth minus wage pressure equals NOT-full-employment.

November 1st, 2019 at 9:44 am

Payrolls rose 128,000 last month, well above expectations for 85K, and job gains in the prior two months were revised up by 95,000 (a sizable upward revision). Also, the October gain of 128K was dampened by the absence of about 50,000 striking workers at General Motors who are now back at work as the strike ended. In other words, despite slowing global growth, political uncertainty, weakening trade flows hit by the trade war, the U.S. job creation machine remains in high gear.

What’s missing–and it is a serious omission–is wage growth. Yes, wages are rising at a decent yearly clip of around 3% and importantly, they’re beating inflation which is running below 2%. But if anything, wage growth, at least for the series in this report, has decelerated in recent months (see figures below; another series show flattening; none show acceleration). This, along with weak inflation data, strongly suggests the labor market is not at full employment. If it were–if labor demand was strong enough to trigger clear supply constraints–we’d see be seeing considerably more wage pressure.

The unemployment rate ticked up to 3.6% last month, but for good reasons: more workers entering the workforce, as the labor force rate also ticked up slightly. At 63.3%, it’s the highest it has been since August 2013. More important, since the overall rate includes elderly people leaving the job market for retirement, the closely watched prime-age employment rate rose to 80.3%, climbing back for the first time to its 2007 peak. This is evidence that persistent, high-pressure labor market is pulling people in, and another indicator that labor market capacity is greater than many believed to be the case earlier in the recovery.

Another indicator of the benefits of running a high-pressure job market is seen in the African American unemployment rate, which at 5.4%, hit an all-time low last month with data going back to 1972. Due in part to systemic racism, black unemployment rates–at all education levels–are higher than those of whites. Pushing the other way, however, is the fact that minority workers often respond more strongly than whites to cyclical gains of the type we’ve been seeing of late. It is thus notable that over the past three months (August, September, and October) the black/white unemployment gap has been the lowest on record. Since 1972, the average gap (black unemp – white unemp) has been about 6 percentage points. Over the last three months, it was 2.1, 2.3, and 2.2 respectively.

Readers know that we use our monthly smoother to boost the signal-to-noise ratio in the payroll data by taking averages of monthly gains over 3, 6, and 12 month periods. This month’s smoother has an extra set of bars, as we’ve (where “we” means the remarkably efficient Kathleen Bryant) added 50K back into the payroll gains to account for the strike. Doing so reveals a quite strong pace of job gains over the past 3 months of 192K. The 12-month average yields a longer-run trend of around 180K, also a strong number, and easily big enough to keep the unemployment rate below 4 percent for the near future.

So where’s the wage pressure? The next two figures show wage growth clearly accelerated as the job market tightened, then stalled in recent months. I’m sure some commentators will make the point that as unemployment has bottom out in the mid-3’s (i.e., it’s not been falling further), we shouldn’t expect wage acceleration. (Technically, this argues wages are on the wage-Phillips-curve line.) It’s a fair point, but it also implies that employers are not facing pressures to further bid up pay to get and hold onto the workers they need to meet the demand for the goods and services they’re selling. And absent these pressures, along with a) weak inflation data and b) the higher participation figures cited above, the fact remains that while the U.S. job market is going strong, it’s not yet at full employment.




September jobs report: solid, slowing, and not yet at full employment

October 4th, 2019 at 9:37 am

Payrolls rose 136,000 last month and the unemployment rate dipped to 3.5 percent, its lowest rate since the late 1960s. Though the payroll number missed analysts’ expectations (~145,000), the more reliable 3-month average came in at a healthy 157,000, strong enough to put downward pressure on unemployment (the prior two months of payroll data were revised up by 45,000 jobs).

Our monthly smoother takes 3, 6, and 12-month averages of monthly job gains to help pull out the underlying trend out of the noisier monthly data. Over the past 6 months, payroll gains have average 154,000, a deceleration from the 12-month number (179K), but such a pattern is expected in an economy closing in on—though not yet at—full employment.

Wage growth for private-sector workers was up 2.9 percent over the past year, a slightly slower rate than in previous months. The wage pace was stronger for middle-wage workers (production, non-supervisors) at 3.5 percent, but in both cases, as the figures reveal (note especially the 6-month moving averages), the trend in wage growth is not accelerating, even given the low unemployment rate. For the “all” group (first figure), there’s even some evidence of decelerating wages, a possibility that is now on my watch list. I return to these important observations below.

State and local government hiring was important in September, adding 24,000 jobs. Though analysts expected hiring for the decennial Census to be a factor in these data, that was not the case, as the BLS reported such hiring only accounted for 1,000 jobs last month. The factory sector is clearly stressed, with manufacturing losing 2,000 jobs in September. The GM strike is certainly in the mix here, but thus far this year, the factory sector has added an average of fewer than 5,000 jobs per month, compared to 22,000/month last year. That’s much more trade-war than strike.

As noted, the Household survey showed greater signs of job-market strength last month. Along with unemployment at a 50 year low, the underemployment rate (the “u6” rate, which includes part-timers who want full-time work) fell to 6.9 percent, close to its all-time low of 6.8 in October of 2000 (this series only starts in 1994). The closely watched employment rate (“epop,” for employment-to-population ratio) for prime-age workers ticked up one-tenth for both men and women. Women’s prime-age epop–74 percent last month–has handily surpassed its 2007 peak, while men’s–86.4 percent–is still below their 2007 peak of 88 percent.

However, as the next figure shows, since the 1970s, men’s epop’s have moved like a ratchet–highly cyclical, but never quite regaining prior peaks. One conclusion is that men (and women) respond to employment opportunities but, at least for the men, they’ve been losing more in the downturns than they’ve gained in the expansions. My analysis suggests that if the cycle persists, prime-age epop’s will regain their prior peak, pushing back on the long-term ratchet.

Consider the following:

–Wage growth is not speeding up and probably decelerating;

–The pace of job gains has attenuated but remains solid, even this late in the expansion;

–Labor supply continues to grow, as per the epop discussion above.

–Price growth shows little pressure, even at historically low unemployment.

Put these facts together and one, strong conclusion is that even in year 11 of this long expansion, the U.S. labor market is not yet at full employment. Thus, the Federal Reserve has little cause to tap the growth brakes and good reasons to try to keep the recovery going, which in the current context means pushing back on pressures from the trade war, slowing global growth, and political chaos.

[Huge hat-tip to Katie Windham for stepping up and helping with the above!]

Got work? The highly responsive labor supply of low-income, prime-age workers.

October 2nd, 2019 at 8:02 pm

[Note: this is draft of a forthcoming paper for CBPP’s Full Employment Project. I posted it here first as I will be referencing its findings at a Brookings inflation conference on Thurs, Oct 3.]

By Jared Bernstein and Keith Bentele[i]


The benefits to running a hot labor market continue to be evident both in the data and in anecdotal accounts. In our last paper, we examined the monetary policy rationale for allowing high-pressure labor markets to continue to flourish.[ii] We also focused on the benefits of persistently low unemployment to lower income workers, through both higher real pay and more hours of work. In this short paper, we turn back to this evidence, with a closer focus on the benefits of high-pressure labor markets to the labor supply of lower-paid workers.

The most basic labor market theories generally lack the necessary nuance to shed much light on this question. The textbook 101 model assumes full employment and an equilibrium wage where employers’ demands’ and undifferentiated workers’ supply perfectly match. A wage set too high will lead to more job seekers than jobs; a wage set too low will cause the opposite problem: too few workers willing to fill available slots. In the real world, however, there are of course periods of slack labor markets, along with factors such as racial and gender discrimination. Some particularly disadvantaged workers may face uniquely high barriers to labor market entry. Also, recent research has identified large sectors in our economy, like retail, tech, and health care, where few employers dominate. In such markets, employers can become wage makers, not wage takers, i.e., they can use their dominance to set wages below the theoretical equilibrium.

In this note, we ask a simple, specific question related to this more realistic version of the labor market: do low-wage workers respond to high-pressure labor markets by increasing their labor supply? What evidence is there that tight job markets pull in such workers?

We find highly cyclical responses to both the extensive and intensive margins of labor supply for low-income, prime-age persons, especially for first-quintile African Americans and for women. A simple decomposition finds, for example, that the earnings of low-income Black people doubled in the high-pressure labor market of the 1990s, with gains in their share working (extensive margin) explaining half of the increase. Conversely, under low-pressure conditions, the decline in working shares dominates sharp income losses for these groups of people. We also find the extensive margin to be particularly important for low-income women, and a simple simulation suggests that in the hot labor market of the 1990s, most of the gains in the gender gap were due to women’s relative (to men) gains along the extensive margin. We offer policy implications of these findings on both macro and micro levels.

Previous Literature

Arthur Okun is widely credited with pioneering research into the benefits of very low unemployment for marginalized groups. In the context of a “high-pressure economy” he hypothesized that employers are more likely to lower formal hiring standards in order to fill vacancies, and that this would benefit  less-advantaged job seekers in the labor market[iii]. In a 1973 paper Okun found that in such periods, women and teenagers experienced disproportionately large increases in employment. Since this initial confirmation of a rather straightforward hypothesis, many studies have reinforced this finding. The uniquely strong economy in the late-1990s prompted a body of work evaluating the impacts of these conditions. Roberts and Rodgers (2000) examined the impacts of low unemployment on earnings and employment in metro labor markets and found that less educated men, and young African American men in particular, experienced the greatest improvements[iv]. Similarly, Wilson (2015) explored the positive impacts of strong economic growth in the late-1990s on both the employment and earnings of African American people[v]. Katz and Krueger (1999) found that the tight labor market of the late-1990s contributed to a significant increase in the both the incomes of lower-income families and falling poverty rates in those years[vi]. Jargowsky’s (2003) research captured a 24% decline in the number of people living in high-poverty neighborhoods, census tracts where 40% or more of residents are in poverty, between 1990 and 2000[vii]. This study found that the strong economy reduced the concentration of poverty for all racial and ethnic groups, but had a particularly pronounced effect on African American communities. The share of poor African American people living in high poverty neighborhoods fell from 30% in 1990 to 19% in 2000. Such impacts have informed William J Wilson’s assertion that the “ideal solution” to addressing a root cause of concentrated poverty, inner-city joblessness, “would be economic policies that produce tight labor markets” (Wilson 2008:568)[viii].

The specific findings of greater cyclical variation in wages, employment, and labor market participation for economically vulnerable groups have been widely documented. Hoynes (2000) found this to be the case for the employment and earnings of less educated workers, people of color, and women with lower skill levels. All experienced more variation over the course of the business cycle relative to higher skilled men, a finding that was particularly pronounced in the context of one’s probability of being employed full-time year round[ix]. Jefferson (2008) found that trends in the employment-to-population ratio for workers with less education are substantially more volatile compared to those with more educated workers [x]. And more recent research, including that which examines the current strong economy, has only further bolstered these findings. For example, Aaronson et al. (2019:3) state that their research,

“reaffirm[s] the earlier finding of other authors that the labor market outcomes of blacks, Hispanics, and those with less education are more cyclically sensitive than the outcomes of whites and those with more education.”[xi]

And consistent with the work of Roberts and Rodgers (2000), they find that cyclical variability in labor market outcomes is particularly pronounced for young African American workers. Further, Aaronson et al. (2019) find suggestive evidence that further strengthening in the context of an already very strong economy is particularly beneficial to some disadvantaged groups.

The flip side of higher cyclical variability is that recessions hit low-wage workers and members of marginalized groups particularly hard. Decreases in earnings and employment during recessions are consistently disproportionately larger for low-wage earners, people of color, and low-income female-headed households[xii]. Kenworthy (2011) has stressed the devastating impact of recessions on hours worked by very low-income households, an issue compounded when followed by a weak recovery[xiii]. While the evidence is admittedly thin at this point, high-pressure labor markets may potentially play a small protective role in regards to this cyclical vulnerability. Aaronson et al. (2019) find that the gains made during high-pressure periods for Black people and women are “somewhat persistent”. Similarly, Hotchkiss and Moore (2018) find that high-pressure periods lead to higher employment, wages, and earnings in subsequent downturns for young men and Black people. However, they stress that these specific positive benefits are largely confined to these groups and may be short lived.


For a full description of the data used below, see our earlier paper. We use the same procedures and inclusion criteria to generate the estimates used here with only two important changes. First, previously we used household income from all sources to determine quintile thresholds, here we have used a measure of total household income adjusted for household size (household income/number of household members). Second, our estimates of annual hours worked are based on the average of individual-level data on hours worked (hours per week*weeks per year), as opposed to a quintile-level estimate of annual hours. We found that our inclusion of individuals with $0 earnings in our estimates of quintile level hours and weeks produced an underestimation of annual hours that was not present in the averaged individual-level estimate of annual hours.


While it is common for labor analysts to look at employment rates, such rates are generally overall averages, often by gender or race. Because our data is broken out by income fifth (and by gender and race), we can look at the share of prime-age people with positive annual work hours, meaning any reported paid work last year, by quintile.[xiv] As Figure 1 shows, consistent with prior research, the series for persons in the lowest fifth is much more cyclical than that for the middle or top fifth.

Figure 1.

In fact, simply using the unemployment rate (logged, with one lag) and the lagged first-quintile series in the above figure, we can derive a dynamic prediction that tracks the series well (See Figure 2).[xv] The share working exceeded the forecast in the latter 1990s, but this was a period when many “pro-work” policy changes affected low-income workers, including work requirements in TANF, a large expansion in the Earned Income Tax Credit, and an increase in the minimum wage. But it was also a high-pressure labor market period. Using the 2018 unemployment rate of 3.9 percent, the model forecasts a jump of about 5 percentage points in 2018.[xvi]

Figure 2.

Figure 3 examines the share of working African American people. Because of the smaller sample size, we plot the bottom 40 percent. These workers appear to be particularly elastic to high-pressure labor markets, with large employment gains in the 1990s and in the current recovery.

Figure 3.

In the appendix, we include similar figures for prime-aged men and women in the first quintile of adjusted household incomes. The cyclical patterns are roughly similar to the total figure above (the simple model tracks the series well), though as earlier research has shown, the women’s series tends to trend up while that of men trends down due in part to structural challenges like the loss of production jobs.

Because we have earnings data and annual hours, we can decompose the earnings of low-income people into the share working (the “extensive margin”), annual hours among workers, and hourly wages (see Table 1).[xvii] By decomposing these changes over different time periods, we can observe how this group has fared in both high- and low-pressure labor markets and which factors have the greatest impact on real earnings growth.

Table 1. Real Earnings Contributions in High- and Low-Pressure Labor Markets

The first few panels look at high-pressure labor markets. Between 1993-2000, when the unemployment rate fell from 6.9 to 4 percent, the real, annual earnings for all low-income persons rose just under 50 percent (log points), from about $8,200 to $13,400. Importantly, we include those with zero hours, and thus zero earnings, in these calculations, so as to capture the impact on earnings of their crossing the extensive margin (going from zero to positive hours worked). As the first column shows, the share working increase 23 percent, and since this is an additive decomposition (the first three columns of the row “ln change” sum to the fourth column), this added labor supply explains almost half (23/49) of the earnings gain over this high-pressure period.

The second panel show the more recent period, 2011-2017, when unemployment fell from 8.9 percent to 4.4 percent. Real earnings were up about 30 percent over this period, meaning that on an annualized basis, real earnings grew 2 points faster in the 1990s high-pressure labor market (7 versus 5 percent per year) through 2017. The extensive and intensive margins, entry into employment and increased hours respectively, explain about one-third each, as does the growth in real hourly wages.

The next panel drills down into the experience of first-quintile African Americans in the high-pressure labor market of the 1990s, when Black unemployment fell from 13 percent to 7.6 percent and their real, annual earnings remarkably doubled, for an annual real growth rate of just under 15 percent per year. Fully half of that gain was due to an almost 50 percent increase in the share working, with the other half split between more annual hours by workers and higher real hourly wages.

It is important to turn to low-pressure labor markets to see how this process shifts into reverse. From 2007-11, the jobless rate rose from 4.6 to 8.9 percent, and first quintile real earnings fell almost 30 percent, with half the decline attributable to the fall in the share of workers from 67 to 58 percent. Compare this fall to the absence of change (not shown) for the top quintile over these years. In both 2007 and 2011, their prime-age share at work was 95 percent, a stark reminder of who bears the brunt of recessions.

African American unemployment about doubled, 2007-11, from about 8 to 16 percent. Black people in the first quintile lost almost half of their real earnings in this downturn, with three-fifths of the decline coming from the decline in the share working.

Turning back to the top fifth, the bottom panel of Table 1 shows how affluent, prime-age people are extremely inelastic regarding changes in labor supply. In fact, they’re largely topped out in terms of annual hours worked and share working. Their average share working is 95 percent and the standard deviation around that mean over these years is  three-fifths of a percentage point, compared to a standard deviation of 6 points for the first quintile of all prime-age people (10 times that of the top fifth) and 10 points for the African American first quintile. These are profound differences in cyclical variability in employment.

Table 2 presents the same decomposition for first quintile, prime-age people by gender, looking at the high-pressure 1993-2000 period, the Great Recession, and the slow recovery of 2007-11. As shown in the appendix figures on share working by gender, low-income women are more cyclically responsive in these data, at least until around 2000, when both genders appear somewhat more elastic to the business cycle. The findings show that low-income women’s extensive margin gains were particularly important in the 1990s, explaining 60 percent of their significant real earnings’ gains (45/75). For men, however, that margin contributed little compared to more hours worked and higher real wages.

Table 2. Real Earnings Contributions in High- and Low-Pressure Labor Markets, by Gender


Table 3 does a simple simulation to parse out the role of crossing the extensive margin in reducing the gender wage gap in the high-pressure labor market of the 1990s. Note that the gender gap compressed by 23 percentage points in these years, from 39 percent in 1993 to 62 percent in 2000. A simple simulation (see footnote and table note) suggests that almost all of that closure was a function of the increase in women’s share working.[xviii]

Table 3. Gender Inequality (Q1) and the Extensive Margin

Note: The 2000 simulated value (in bold) is the product of the 1993 share of women working and their 2000 hours and hourly wage.

In the low-pressure labor market panel, real earnings fell sharply for both genders, and in this case, the extensive margin dominates in both cases.


Our findings and those of other researchers, in tandem with extensive recent anecdotes from the media regarding new opportunities for left-behind workers, show that the labor supply of low-income workers, especially women and Black people, is highly elastic to labor market conditions, while that of high-income workers is much less so. In the high-pressure labor market of the latter 1990s, real annual earnings grew by half for all first quintile workers (including “zeros”) and doubled for African American people. In both cases, the increase in the share working explained about half these gains.

The policy implications of these findings invoke both macro and micro policies. At the macro level, as we stressed in our earlier paper, running the labor market hotter-for-longer returns economically significant benefits to those who need them the most. From the perspective of the Federal Reserve’s monetary policy, the additional fact that inflation has proven to be quite insensitive to low unemployment seals the deal: as long as inflation remains “well-anchored,” for vulnerable workers to get ahead, we can and should pursue full employment.

At the micro level, our findings speak strongly against the notion that receipt of anti-poverty benefits should be conditional on the work requirements that have recently surfaced in various states, for example, through federal waivers to the Medicaid program. Low-income workers have already been highly responsive to job opportunities; the problem is that those opportunities either don’t exist in slack labor markets, or they face internal (skill deficits) or external (discrimination) barriers to getting into the job market. Hassling them off of the benefit rolls by making them jump through administration hoops will not lead them to work more, but it will surely diminish their income and their health.


Table A.1

Table A.2



[i] We thank Jesse Rothstein for comments and Kathleen Bryant for technical assistance. Any mistakes are our own.

[ii]  Jared Bernstein and Keith Bentele, “The Increasing Benefits and Diminished Costs of Running a High-Pressure Labor Market,” Center on Budget and Policy Priorities: Full Employment Project, May 15, 2019,

[iii] Okun, Arthur M. 1973.“Upward Mobility in a High-pressure Economy.” Brookings Papers on Economic Activity. 1:207-261.

[iv] Cherry, Robert and William M. Rodgers III (eds.) 2000. Prosperity for All? The Economic Boom and African Americans. New York: Russell Sage Foundation.

[v] Wilson, Valerie. 2015. “The Impact of Full Employment on African American Employment and

Wages,” Economic Policy Institute.

[vi] Katz, Lawrence, and Alan Krueger. 1999. “The High-Pressure U.S. Labor Market of the 1990s.” Brookings Papers on Economic Activity. 1:1-87.

[vii] Paul Jargowsky. 2003.  “Stunning Progress, Hidden Problems: The Dramatic Decline of Concentrated Poverty in the 1990s.” The Brookings Institution.

[viii] William Julius Wilson. 2008-09. “The Political and Economic Forces Shaping Concentrated Poverty.” Political Science Quarterly. 123(4):555-571.

[ix] Hoynes, Hilary. 2000. “The Employment and Earnings of Less Skilled Workers Over the Business Cycle.” in Finding Jobs: Work and Welfare Reform, edited by Rebecca Blank and David Card. New York: Russell Sage Foundation.

[x] Jefferson, Philip N. 2008. “Educational Attainment and the Cyclical Sensitivity of

Employment.” Journal of Business and Economic Statistics 26(4):526-35.3

[xi] Aaronson, Stephanie R., Mary C. Daly, William Wascher &  David W. Wilcox. 2019. “Okun Revisited: Who Benefits Most From a Strong Economy?” Brookings Papers on Economic Activity. BPEA Conference Drafts.

[xii] Aaronson, Stephanie R., Mary C. Daly, William Wascher &  David W. Wilcox. 2019. “Okun Revisited: Who Benefits Most From a Strong Economy?” Brookings Papers on Economic Activity. BPEA Conference Drafts.

Bentele, Keith G. 2012. “Evaluating the Performance of the U.S. Social Safety Net in the Great Recession.” Center for Social Policy Publications. Paper 62.

Cajner, Tomaz, Tyler Radler, David Ratner, and Ivan Vidangos. 2017. “Racial Gaps in Labor Market Outcomes in the Last Four Decades and over the Business Cycle.” Working Paper 2017-071. Finance and Economics Discussion Series. Washington, D.C.: Federal Reserve Board.

Zavodny, Madeline, and Tao Zha. 2000. “Monetary Policy and Racial Unemployment Rates.” Federal Reserve Bank of Atlanta Economic Review 85(4):1–59.

[xiii] Kenworthy, Lane. 2011. Progress for the Poor. New York: Oxford University Press.

[xiv] Note that this is a somewhat different metric than the oft-cited prime-age employment rate from BLS. The measure asks if people are working in the reference week of the month; this one asks if people had any positive work hours over the course of the prior year. The latter tends to have a higher level, but the trends are roughly similar.

[xv] “Dynamic” in this context means the lagged dependent variable is predicted (versus plugging in the actual value) for each observation in the predicted series.

[xvi] We plan to shortly update this analysis with the recently released 2018 data.

[xvii] Annual earnings for all prime-age persons in the quintile (assigning zeros to non-workers) is the product of the
share working*annual hours*hourly wage. Taking log changes facilitates the decomposition.

[xviii] We make this calculation by simulating women’s 2000 earnings using their actual hours and wage but using their 1993 share working (45%). The difference between this simulated gender gap and the actual gender gap can thus be assigned to their large increase in share working.