Rising jobs tide for poor workers may ease US Fed rate dilemma

By: | Published: September 16, 2015 3:07 PM

When the Federal Reserve considers whether the U.S. economy is ready for an interest rate hike on Thursday, policymakers will want to be confident the jobless rate, now at 5.1 percent, is as strong as it looks.

When the US Federal Reserve considers whether the US economy is ready for an interest rate hike on Thursday, policymakers will want to be confident the jobless rate, now at 5.1 percent, is as strong as it looks.

There appear to be reasons for optimism as many poorer and less educated workers are finding jobs or receiving bigger raises.

Improvements in the labor market for low-income Americans historically accelerate when the economy is closer to full output, which the U.S. central bank considers to be consistent with an unemployment rate between 5.0 percent and 5.2 percent.

That suggests the Fed is running out of time to begin raising rates – it has kept its benchmark overnight lending rate at near zero since December 2008.

The recent turmoil on global financial markets, however, has many investors betting the Fed’s policy-setting committee will leave rates unchanged at the end of its two-day meeting on Thursday, choosing to hike instead in December.

Traders are now pricing in a 27 percent probability of a rate hike on Thursday.

Low earners were the biggest losers when the jobless rate surged as high as 10 percent during the 2007-2009 Great Recession. In July, Fed Chair Janet Yellen said the downturn “was particularly punishing to African-Americans and to lower skilled workers more broadly.”

Between 2008 and 2009, 1.2 million blacks lost their jobs across the nation. By 2011, the unemployment rate in the black community was 16.5 percent, more than 7 percentage points above the national average.

But it had dropped among blacks to just over 9 percent as of last July, about 4 percentage points above the national average, which is roughly where it was before the recession, according to U.S. labor statistics.

A similar recovery has played out among those without a high school diploma, about half of whom are black or Hispanic. That group’s unemployment rate fell to 7.7 percent in August, right where it was before the recession started.

“It’s a sign that we’re closer to full employment,” said James Sweeney, chief economist at Credit Suisse in New York.

Some economists argue still-sluggish U.S. wage growth points to economic slack, which activists say is especially hard on black workers. Despite the recovery from the financial crisis, blacks remain poorer and about twice as likely as whites to be unemployed, a disparity that some economists point to in urging the Fed to keep rates low.

At the same time, the current surge of blacks back into the U.S. workforce may signal labor market tightening. A similar pattern was seen around 2004 when blacks began flooding back into an increasingly hot job market after having left the workforce in droves in the wake of the 2001 recession.


Drops in the jobless rate since the last recession have generally been accompanied by declines in the number of people looking for work.

But the labor force, defined as everyone with a job or looking for one, has stabilized over the last 12 months – it contracted when the recession put millions out of work. The unemployment rate has fallen by 1 percentage point over the same period.

Since early last year, those hardest hit by unemployment appear to have started returning to the labor force as job prospects brightened.

The share of people in the labor force, known as the participation rate, has risen about 2 percent among blacks, while it is up about 1 percent for Hispanics. Participation has fallen for whites, though more slowly than in prior years.

The overall participation rate has stabilized at just under 63 percent, with the participation rate also leveling off for people in the prime working years of 25-54.

Among black prime-age workers, a rise in participation since early last year means they have now recovered more than the average gain for all Americans since 2007. The same holds true for workers without high school diplomas.

In another sign of labor market tightening, wages for lower paying jobs have started to rebound. Workers in the leisure and hospitality industries, the lowest paying sectors of the economy, earned an average $12.33 an hour in the 12 months through August, up 3.1 percent from the prior year and faster than the overall average of a 2 percent rise.

Weekly earnings also have risen across industries for the poorest Americans over the last year and a half.

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