Beyond tepid job numbers, a surprisingly bright picture

The unemployment numbers for last month were mediocre. But the deeper trends show a potentially big shift coming. 

The United States added 156,000 jobs last month, the Commerce Department reported Friday – a number that economists found mildly disappointing.

But take a step back and the employment picture looks much brighter. Every month that the US adds 100,000 jobs or more, the economy gets closer to an important tipping point. For only the third time in the past 20 years, the nation is nearing full employment. Instead of too many workers chasing jobs, the US is poised to have too few.

In the depths of the Great Recession, there were 6.6 unemployed workers for every job opening. By July of this year, there were only 1.3 unemployed workers per job opening – the lowest level ever recorded since the Commerce Department began tracking it in 2000. In September, the unemployment rate hit 5 percent, the department reported Friday. Economists say full employment lies somewhere between 4 and 5 percent.

That emerging worker shortage has huge implications for America. It means that employers will have to increase pay and benefits to compete for a shrinking pool of available labor. It suggests that more discouraged Americans, still sitting on the sidelines, will rejoin the labor force. And it suggests that after seven years where the economic gains of the post-recession have largely flowed to capital and its owners, the majority of gains will now flow to labor (at least until the next recession).

“There is more competition for workers than ever,” says Andrew Chamberlain, chief economist at Glassdoor, a job and recruiting website. “I think we're going to see wages rising in 2017.”

Where the jobs are

The dynamics of worker shortages are already playing out in a surprising broad number of fields.

Technology and health care are at the top of the heap, with college graduates becoming used to fielding multiple job offers. 

“It’s a great opportunity,” says Val Vulaj, a senior in electrical engineering at Michigan State University in Lansing. She won’t start her final internship until next summer, but she already has two internship offers: from General Motors and from Fiat/Chrysler. Many of her engineering friends are seeing the same. “We’re in positions that other people wish they could be in.”

Construction job openings stand at a 10-year high, according to the Associated General Contractors of America, as firms struggle to find new workers. 

Building is so strong in in Portland, Maine, that Southern Maine Community College has had to suspend its construction technology program. Too many students were dropping out of school to take jobs. “In a perverse way, this program has been challenged by the good economy,” says college President Ron Cantor. The school is now in talks with the industry to see how it can reconfigure its program.

Hotels and restaurant job openings reached a record high in the first quarter of 2016, according to the National Restaurant Association. In northeast Ohio, so many new restaurants have opened that some operations are reportedly sharing employees to handle the new business.

Agriculture is even seeing a shortage.

“It gets worse each year,” says Pete Aiello, general manager of Uesugi Farms, a diversified vegetable and fruit grower based in Gilroy, Calif. The company has lost workers to construction firms and hotels and restaurants, so to hold onto its nearly 1,000 migrant workers it has boosted pay to between $15 and $20 an hour, offers medical insurance, and is working to roll out a 401(k) retirement plan.

“There's just too much acreage to cover and not enough labor to pick it,” says Mr. Aiello in the midst of harvesting red bell peppers in his northern California operation. “A lot of these peppers, by the time we get to them ... they're just going to rot on the field.”

Where the jobs aren't

Not all areas of the labor picture are bright. While satisfied with their own employment, two-thirds of Americans still say good jobs are tough to find, Pew Research Center reported Wednesday. Last year, 72 percent of major corporations with employees earning minimum wage had no plans to raise their pay, Aon Hewitt reported.

Not much has changed since then on that front, as companies wait on the federal government or perhaps states to raise the mandated minimum wage, says Neil Shastri, head of global insights and innovation at Aon Hewitt, a human resources and consulting services firm based in Lincolnshire, Ill. And some industries are not running short of workers.

“Jobs that can be automated or are under risk from technology are likely to reduce dramatically, or entirely disappear,” Mr. Shastri writes in an email. “Think of telemarketers or certain kinds of accountants.”

Average pay for forklift operators is down 0.6 percent so far this year compared with the same period in 2015, according to Mr. Chamberlain at Glassdoor. Field-service engineers and delivery drivers have seen a similar dip in pay.

Signs of a new surge

But the worker shortage promises to change that dynamic, tipping the advantage from employers to employees if the economy can continue to expand in coming months and years.

One measure of the worker shortage: It takes more time to fill the average position. It now requires a record 29.3 working days, nearly double what it did in the Great Recession, according to a job vacancy index by DHI Group, an online job-search service. It’s especially high in health care (47.9 days) and financial services (42.2 days).

Also, the current expansion looks more broad-based than the two previous periods of job growth. The late 1990s hiring spree was driven by the dot-com bubble; the mid-2000s boom was fueled by the housing bubble, says Phil Gardner, director of the Collegiate Employment Research Institute at Michigan State University. “This one doesn't have a bubble…. There's no one thing driving this.”

On Tuesday, the institute forecast a 19 percent surge in hiring of college graduates with bachelor’s degrees and a 37 percent increase for those with associate’s degrees for the 2016/17 school year.

This era is reminiscent of the mid-1990s, when the economy was growing strongly but before the dot-com boom really took off, says Andrea Dine, executive director of Brandeis University’s career center in Waltham, Mass. “I think we're in the early part of this shift.”

Companies get creative

Faced with a shortage, companies are devising increasingly creative ways to attract workers. They are introducing themselves on campuses by creating internships not just for juniors and seniors but also for freshmen and sophomores. They’re beefing up benefits. Workers already expect certain things: flexible dress code, flexible hours, and snacks and drinks, Shastri says.

Now, companies are offering unusual perks to stand out from the crowd.   

HomeAway, a marketplace for vacation rentals based in Austin, Texas, offers a free vacation rental and the ability to work up to two weeks in any of its global offices. Audible Inc., a Newark-based digital media company, advertises catered lunch and an onsite gym. Location Labs, a mobile consumer products firm in Emeryville, Calif., boasts top-notch espresso machines and biweekly massages in the office. [Editor's note: This paragraph was changed to correct the name of HomeAway and its benefits.]

And they’re raising pay. Last year, tech professionals saw their salaries jump 7 percent, the biggest leap in the more than 10 years DHI began conducting the survey. “It’s clear employers are adapting and paying up to secure top talent,” says Mike Durney, the company’s president and chief executive officer.

That’s more than double the average pay increase that workers are getting. Average hourly earnings last month rose only 2.6 percent over the same period last year, according to the Commerce Department’s Friday report. 

But the evidence is building that employers will have to pony up more pay increases as workers become scarcer. Six in 10 hiring managers across industries say candidates are asking for more money as compared with six months ago, a DHI survey found in May. College graduates in 2017 should see some of the best starting salaries in a decade, according to the Michigan State University survey. Average increase from last year: 4 percent.

“You get to do what you want and you get to go where you want,” says Ms. Vulaj, the electrical engineer at Michigan State. “It has its perks.”