Wage growth is a ‘temporary mirage,’ economist says

Upwork Chief Economist Adam Ozimek reacts to the November jobs report by outlining the longevity of job hiring in certain sectors and factors contributing to wage growth.

Video transcript

ZACK GUZMAN: And Adam, when we look at the data around all this, I mean, beyond the headline number, what do you make of this report, given the fact that, you know, we're still 5 million jobs short of some of the forecasts before the pandemic impacted and roiled everything in the employment sector? What do you make?

ADAM OZIMEK: Yeah, this is one where you really want to get below the hood and look at the details. It's actually a little bit of a noisy and confusing report this month because while it's true that the establishment survey says that we only added 210,000 jobs, the survey of households says we added over a million jobs. So there's a little bit of a contradiction going on here. I think some of this is noise.

But, you know, I do think that we should look through the short-term noise and volatility. And what we're seeing is an economy that is growing fast. There's really no reason that the jobs market would have slowed down in November. And so, this month, I'm leaning a little bit more in the household survey. And my takeaway is, you know, we had strong growth this month.

ZACK GUZMAN: Yeah, and I guess, when you look at-- it's been a weird time. We saw the same thing with delta when some of the data looking back is noisy, just because no one really knows how omicron is going to impact hiring. However, we are heading into the holiday quarter. And some of these jobs that need to be filled aren't ones that you're able to push off beyond the holiday season. I mean, when you dig into kind of the sectors that you've seen, we've talked a lot about the bounceback in leisure and hospitality. What else are you seeing when you dig into kind of the sector performance here on the jobs front?

ADAM OZIMEK: So what's interesting is now is a time for strong seasonal hiring in retail, leisure and hospitality, transportation, warehousing, and a variety of sectors. And if you actually look at the not seasonally adjusted numbers, job growth was pretty strong this month in the payrolls. You still had around 800,000. What I suspect might be happening in some of these sectors is that they have longer term openings. We know that openings are really high.

And I think that they're going to take what is usually seasonal hiring, meaning you sort of hire people in November, December, to take care of a holiday rush. And then you let them go January, February. I actually think some of that seasonal hiring is going to stick around. And so, what it's going to look like is, sort of strangely, is, like, really fast job growth come January, February, when those seasonal hires are permanent hires.

ZACK GUZMAN: Also talked a lot about wage growth in all this. And, you know, we've been spotlighting inflation, and of course, you had the Fed kind of striking transitory from their language when it comes to their check on inflation here. But when it comes to wages in the lower tiered income bracket, it was interesting to see kind of them coming out ahead and seeing the largest gains. We've talked a lot about the need to hire in some of those hourly worker fronts. I mean, what do you see there in terms of maybe how some of the wage growth is keeping up with inflation and what it means for the strength of the US consumer?

ADAM OZIMEK: Well, at the lower end of the labor market, we're really dealing with temporarily tight labor markets. It's important to focus on the temporary part. There is a lot of reduction in people looking for work because they had a high savings rate from the stimulus, because they were, up until September, receiving, a lot of them, more on unemployment than they had been when they were working. And so you have a lot of these pent-up savings, and you have people who are sort of sitting on the sidelines still in the lower skilled labor market.

They are going to be coming back from work. And I believe that they are increasingly coming back from work. And that is going to pull down the wage growth for lower skilled workers. It's really a temporary sort of mirage that we're seeing right now. And, you know, the strong inflation is going to erode some of those gains. And, you know, that's not great news for the workers who aren't getting wage hikes. But the reality is that if you try to increase wages before you bring millions of people back to work, that's going to slow the recovery. So I do think that there is sort of a mixed blessing in there that the inflation is going to be lowering real wages.

ZACK GUZMAN: And lastly, I mean, we've talked a lot about some of the flexibility that workers preferred in the pandemic. We've talked about the return to the office and what that might mean for trying to get talent on board here. Obviously, you work at Upwork. We've seen a lot of people kind of jump into the freelance lifestyle for some of that flexibility.

And specifically, when we talk about omicron and child care and what that means for workers as they might have to deal with school closures yet again, I mean, how important is some of that when we think about this recovery and being able to convince workers to either take new jobs with that added flexibility, or rather, how hard it might be to get people on board if you can't offer that?

ADAM OZIMEK: Yeah, I mean, you can absolutely see that people want more flexibility than they had coming into the pandemic. I think a big part of the story is that people got a taste of working remotely. And that provides some flexibility. And then when they see that they can do that and the effect that it has on their lifestyles, they're looking for even more flexibility.

So the ability to choose what time of day you work, how often you're working, what day of the week you work, there's a lot of flexibility that comes with being self-employed, that comes with being a freelancer. And I do think that even when the pandemic is over, we're going to see people who are leaning more into that flexibility and choosing that way of working more than we did before the pandemic.