Don’t Forget Who Loses in Fed's Quest to Soften Labor Market

Federal Reserve Chair Jerome Powell is testifying before Congress this week on the state of the US economy and monetary policy, and there will be some tension. The Monetary Policy Report he will be delivering will acknowledge that the “very tight” labor market has benefited a wide range of disadvantaged groups. At the same time, though, it argues that we need “some softening” of the labor market, which will almost certainly hit the disadvantaged hardest.

Keep in mind that lower-income workers are the ones who have come off the sidelines to fill many recent job openings, especially in leisure and hospitality. And they may be the most likely to push up labor productivity in the future. The benefits of the tight labor market, as one example, appear to be going to those with less education. During the current recovery, the wage growth of workers with a high school degree or less has consistently outpaced those of workers with a college degree or more. And the least educated were the only group with wage growth that exceeded inflation.

A look at the data over the long term shows just how unusual the recent wage relationship between the two groups has been. Usually, the wage growth of workers with a high school degree is below that of workers with a college degree. That difference compounds over time, reducing the incentive to work and with the disparity affecting millions of Americans. According to the Census Bureau, the percentage of the US population with a high school degree or less is about 40%, or roughly the same share as that with a college degree or more.

A Rare Feat | Wages during this recovery have risen faster for those with at most a high school degree than those with at least a Bachelors degree

Wage growth among the less educated relates to a broader set of socioeconomic issues. The troubling, decades-long trend of falling participation in the labor force is most pronounced among those with a high school degree or less, especially men. In addition, higher mortality rates are associated with less education. In neither case is it about going to school for a few more years. It’s about more opportunities and higher pay — the advantages of a very tight labor market, albeit in a permanent way.

Even with these recent years of relatively rapid growth, there is ground to catch up. Long-term solutions should focus on raising the marketable skills of individuals with high school degrees without simply telling them to go to college. College is not the best path for everyone; high-quality apprenticeships and training programs are often better.