Welcome to the Letter from the Chief Economist. I’ve been traveling this week, so I’ll try to keep it brief, but here are three things that have caught my attention over the past few days.
First: the July JOLTS
After a summer of speculation and mixed signals about the economy, including mounting anticipation of a recession, it would have made sense to see job openings come down and the market start to cool. Instead, JOLTS showed that openings rose in July, and even the June number was revised higher. Openings are back up over 11 million, and they’ve stayed over 10 million for more than a year.
The ongoing tightness continues to be good news for workers, who generally have their pick of available jobs—there are twice as many openings as there are people unemployed—but it’s a tricky situation for employers and even more so for the Federal Reserve. Even though prices didn’t rise in July, according to the Consumer Price Index, the Fed is determined to ensure inflation is tamed, even if that means causing more economic pain.
As my colleague Layla O’Kane said yesterday during the Lightcast live analysis of the report, “It’s certainly not a hard landing, but I wouldn’t say it's a landing at all. We’re just staying in this period of really high openings, really low layoffs, and we’re not getting to the place where things are cooling off.”
Since JOLTS didn’t show that has started happening yet, it’s likely the Fed will keep pushing harder in raising rates and fighting inflation.
All of this raises the stakes for tomorrow’s Employment Situation report, which will show whether August saw wage inflation increase, as well as labor force participation, the unemployment rate, and other important data about what we can expect in deciphering this complex labor market.
I suppose we’ll know more tomorrow.
Second: fast food bargaining in California
The Fast Food Accountability and Standards Recovery (FAST) Act just passed by the California Senate has created the opportunity for fast-food workers in the state to collectively bargain as an industry (as opposed to doing so at specific workplaces). It would establish a ten-person council made up of representatives from business, labor, and the government, which would then regulate wages and other standards throughout the industry.
Right now, fast-food workers in California earn close to the state minimum wage of $15 an hour (while nationally, fast-food workers make closer to $13 an hour). But since the industry has been among the hardest hit by worker shortages and high turnover, the new council could set a new industry minimum wage as high as $22 an hour, with set raises every year.
So while advocates argue in favor of these significant material gains for over 500,000 workers, opponents of the bill argue it will create unfairly high costs for franchise owners, as well as increased red tape in a state that’s already highly regulated.
Right now, it’s too early to say what kind of impact this could have on the labor market, especially because it hasn’t been signed into law yet. But what’s clear is that workers, recognizing how much employers need them at their jobs, are demanding more from their employers in return. The FAST act is part of the same pattern that created The Great Resignation and rising union membership and approval in the US.
Even when worker demand comes down from its record highs of the past year, major shifts like this legislation could mean that the labor market will have shifted permanently.
Third: airline personnel issues could be the tip of the iceberg
Anyone who’s gone through an airport this summer knows how much of a headache it’s been. If your flight wasn’t delayed or canceled, the one at the next gate was. Because they’re short on workers, airlines are working at the very margin of their capacity, and that magnifies any small complication into a much bigger logistical headache.
But it might not end there. In the Chicago Tribune today, Lightcast Chairman Matt Sigelman and KKR partner Ken Mehlman explain how countless other industries might follow in air travel’s lead. Lightcast data show that job openings for pilots have grown 72% since 2016 while the number of pilots at work has grown only 12%. Since pilots (thankfully) go through years of highly precise training, that gap won’t be easy to bridge.
The problem, as Matt and Ken explain, is that other occupations are looking at similar mismatches in terms of worker supply and demand. They used the example of cybersecurity jobs, which have seen postings go up 70% over the past five years. But five years is also the amount of time it takes to acquire a key qualification for those jobs (CISSP), so the first wave of those workers would only just now be hitting the market.
These problems don’t have easy solutions, and they will require employers to look with a much wider lens about what kind of skills their industry requires, which, if any, certifications to require alongside those skills, and how they can build the future-ready workforce they will need.
It will take deliberate, long-term thinking to avoid these kinds of worker shortages in the future (and reading Matt and Ken’s full piece might be a good first step).
Until next week,
Lightcast Chief Economist