Who Is Benefiting Most from a Tight Labor Market?

Executive Summary

This year the FOMC has been firmly focused on trade-related uncertainty, slowing global growth and the impact of those developments to the economy here at home. But FOMC members have also been emphasizing sustaining the expansion, particularly since the ensuing strength of the jobs market is finally benefiting those most hurt by the Great Recession.

While the distributional outcomes of the labor market may seem like minutiae to a committee with relatively blunt policy instruments, they are nonetheless linked to the Fed’s goals. Policy that supports more marginalized workers without stoking inflation is consistent with the Fed’s Congressional mandates of maximum employment and price stability. The disproportionate improvement for workers who had previously not benefited much from the labor market’s recovery broadens the base of consumer spending and shores up the Fed’s efforts to maintain a tight labor market and get inflation back to 2% on a sustained basis.

In this note, we highlight a number of ways in which the labor market is improving more decidedly for groups hit hardest by the Great Recession. Unemployment is at historical lows for what have typically been more marginalized groups, and this has translated into record low poverty rates. Job growth has been stronger in high-paying industries over the past two years, and for workers in lower-paying industries wages have been outpacing the broader labor market. The improved earnings opportunities have helped pull more people into the labor market and boosted the share of national income flowing to workers. The recent progress, however, has not fully unwound the damage done by the last recession and suggests that there may be more benefits from supportive monetary policy to come for the workers who have struggled most over the past decade.

Unemployment Rates: How Low Can They Go?

As has been widely cited by politicians, media outlets, economists and Fed officials alike, the unemployment rate is hovering near its lowest level in 50 years. At 3.6%, that alone is a pretty solid indication of how tight the labor market is today.

An even more striking example of the reach of the current jobs market, however, is the record- or near-record low unemployment rates among traditionally marginalized groups. Specifically, the Black and Hispanic populations as well as those with less than a high school diploma have seen unemployment drop to record lows this expansion. What’s more, the historically wide gap in unemployment rates between White and non-White workers has fallen to its narrowest on record.

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