American labor market – A strange case of Jekyll & Hyde?

It’s Labor Day in the U.S. today. To mark this occasion, I have decided to write about a topic that has confused me quiet a bit over the last few months: the current state of American labor market.

But first, a personal anecdote – On my way to work last month, I observed the usually busy construction crew near my work building in South Lake Union area of Seattle were holding a strike demonstration. I casually asked one demonstrator what they were protesting. He answered: “we need to get paid”. This came as a surprise. Seattle has been the hottest real estate market for almost two years straight, and anybody who has visited the city in recent years knows that it’s virtually impossible to avoid a construction project in any major neighborhood. So if the demand is so high, what could possibly cause a payment delay for construction workers integral to the city’s expansion?

An internet search gave me some answers: the strike was organized by the International Union of Operating Engineers Local 302, and their primary complaint was around pay and benefits. The union had previously rejected a deal where “the workers over three years would get a 15.9 percent pay raise and a 13 percent increase in fringe benefits such as health and welfare“. I also found out that members of the union make $37.70 to $43.13 an hour.

For context, the average hourly wage in the U.S. is around $27, as of July 2018. While the hourly wage of union workers is higher than the national average, it is important to note the high cost of living in Seattle. According to the MIT Living Wage calculator, for a family of 2 adults and 2 children living in King County, the living wage for both adults working full time is $10.7. If only one adult is working, then the living wage is $28.6. The MIT page does not clarify the age of children (college costs can be a huge burden). I also could not find data on whether construction workers are full time workers throughout the year. My guess would be they are not. Without more contextual data, it is therefore not easy to tell if the current compensation structure serves construction workers in Seattle well. On one hand there hourly wage is significantly higher than the national average. On the other hand, reduced job security and higher cost of living indicate a struggle to maintain a quality life.

This dichotomy is even more amplified in the bigger labor market. For years the unemployment rate has been on a downward trend, reaching 30 year low in July 2018. 51% of American workers reported job satisfaction in 2017,  highest since 2005. The consumer spending has also consistently increased year over year, signaling a strong economy. Rosy days ahead, right?

Not so fast. The Mr. Hyde side shows depressing numbers. Going back to the hourly wage, the real (i.e. accounting for inflation) average hourly wage hasn’t risen much for last 40 years. Americans are also increasingly being priced out of buying houses in metro areas. Only 29% of Americans have the recommended 6 months expense in their savings account. And around 36% of American workers are part of the not-as-reliable gig economy. Americans' paychecks are bigger than 40 years ago, but their purchasing power has hardly budged

The rate at which the labor market is changing makes it even more difficult to plan. The impending retirement wave of baby boomers is sure to affect economic growth and strain social security. More than 43% of American workers are expected to be part of the gig economy by 2020. And almost 30% of jobs could be displaced in industries prone to fast adoption of automation. To make it worse, the U.S. is spending less and less on implementing its labor market policy (which includes training): in 2016, it spent only 0.2% of its GDP, the second lowest among OECD countries (after Mexico).

Not to say that the road ahead is all dark and difficult. The public sentiment finally feels like it’s completely gotten out of its post-recession lull, even though economists have already started talking about the next one. Maybe this sense of Jekyll and Hyde, this sense of uncertainty, of fast paced unexpected disruption, is at the core of what’s driving Americans to overwork.

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