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Jobs: Skills pay the bills
Job report likely to show modest gains but some experts say upper end of market is getting tight.
August 4, 2005: 2:44 PM EDT
By Chris Isidore, CNN/Money senior writer

NEW YORK (CNN/Money) - The labor market may be even stronger than a quick look at the unemployment rate, and hourly paychecks, suggest.

The unemployment rate fell to 5 percent last month, the lowest in nearly four years, from a decade-long high of 6.3 percent only two years earlier. But despite that improvement, average hourly wages have barely kept pace with inflation -- up only 2.7 percent over the last 12 months, compared to a 2.5 percent rise in consumer prices over the same period.

While some other government measures of wages put growth much at healthier levels, closer to a 5 percent average, a survey of employers by Mercer Human Resources Consulting released this week found U.S. employers plan to grant average pay increases of 3.6 percent this year and again in 2006, only slightly more than the average 3.5 percent pay hikes last year.

Friday the Labor Department is set to release its July employment report, with economists surveyed by forecasting job growth of 180,000, up from 146,000 in June, with the unemployment rate steady at 5 percent.

Hourly wages are expected to again post a 0.2 percent monthly rise.

Still, if you look below the so-called headline numbers, the job market and pay gains are looking somewhat stronger, some economists said.

"We haven't seen that much improvement in employment of hourly workers because the job market for lower-skill workers still has a lot of slack in it," said Mark Vitner, senior economist for Wachovia Securities. "But if you look at skilled workers, it's a much different picture. We're starting to see some real shortages in some sectors."

Vitner noted that the unemployment rate for college graduates is down to 2.3 percent, not significantly worse than the 2.1 percent unemployment rate for college graduates in April 2000, when the overall rate hit a 40-year low.

By comparison, workers with only a high school education had a 4.7 percent unemployment rate in June, far worse than the 3.3 percent rate in April 2000, while high school dropouts have a 7.0 percent unemployment rate today.

Vitner said that Commerce Department reports that rely on Internal Revenue Service data rather than surveys of employers suggest that wage and benefits are up about 5 percent for the average employee from a year ago. He said the Labor Department figures that look at hourly wages are underestimating the strength of the labor market, and he expects them to be revised higher.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said that even some less qualified workers are starting to find jobs in the current labor market.

The number of people unemployed for relatively short periods, less than 14 weeks, has shown slim declines over the last year in the Labor Department reports. But the number of those unemployed more than 15 weeks has fallen 20 percent from a year earlier.

"It's a signs that the job market has put some of the worst stuff behind it. Even some of the chronically unemployed people, who are not the most desirable employees, are starting to get jobs," he said.

Some weakness persists

But Achuthan noted that one reason for the slow recovery in employment -- the economy has been growing at 3 percent or better for the last nine quarters -- is that there are still sectors and classes of potential workers where the jobs are not coming back any time soon, unlike the cyclical pickups in hiring seen in past recoveries.

"It's a permanent, structural change, as there was a structural body blow to much of the manufacturing sector," he said.

But another economist suggested that even among higher-skilled workers, there's a lot of slack left in the labor market, which is helping to keep wages in check.

"We're far enough away (from full employment) that we don't need to give it a thought or worry for quite some time," said University of Maryland professor Peter Morici. "If the labor market starts to improve, we'll have a lot more people return to the labor force, so we need a lot stronger gains than we've been seeing to get near a 4 percent unemployment rate."

Morici noted that the proportion of adults in the labor force -- those working or looking for work -- is more than a percentage point lower than levels of the boom years of the late 1990s and 2000. That may seem like a small difference but it can mean an unemployment rate of 6 percent, versus the current 5 percent.

Some are older former workers who have lost jobs and have decided to retire early rather than take a lower-paying job, others are younger workers going back to school to try to improve their future prospects.

"Going back to school is a time-honored solution to unattractive employment alternatives," he said.

For a special report on job and how the current labor market affects you, click here.  Top of page


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