We’ve enjoyed 99 straight months of job gains, with an average of more than 200,000 jobs created each month. Many pundits claim that this pace of growth cannot possibly be sustained. Some are even predicting a recession before 2020. But that is far from inevitable.
On the contrary, the labor market improvements of the past eight years have set off a chain of events that should lead to an even stronger job market in 2019. And this snowball effect should be strong enough to overcome the headwinds of rising interest rates, stock market jitters, trade disputes, and slowdowns in Europe and China.
2018 in Review
In 2018, businesses expanded hiring and posted record-high numbers of job openings across a wide range of industries. By the end of 2018, there were over a million more job openings than unemployed job seekers. As a result, unemployment fell to the lowest rate in nearly 50 years—and the lowest rates ever recorded for blacks, Hispanics, and people with less than a high school diploma.
Many unemployed Americans were able to find jobs, and many underemployed or unhappily employed Americans were able to switch jobs and find new ones that paid more or suited them better. In fact, Americans voluntarily quit their jobs at the highest rates recorded since January 2001.
To reduce turnover and recruit new talent, employers were forced to raise wages, improve benefits, offer their workers more flexible schedules, and convert part-time positions to full-time positions. By late 2018, annual wage growth measured 3.2%, the fastest rate in a decade.
Improved working conditions drew many people who weren’t in the labor force out of retirement or off welfare and back into paid employment. That boosted incomes in many households, particularly those in the poorest quintile.
Labor market changes like these tend to build on themselves. In much the same way that employment contractions start vicious cycles, employment expansions start virtuous cycles. The historic contraction in manufacturing employment in the American midwest in the 2000s caused wages and labor-force participation to fall and remain depressed for a decade; reduced lifetime incomes; increased depression, addiction, and crime; and transformed once-bustling cities into blighted neighborhoods with vacant storefronts.
By contrast, increased youth employment in New York caused by a summer job program for teens reduced mortality by a staggering 18 to 20 percent among participants by reducing the number of young men killed by homicide or suicide. While some effects of expanded employment are dramatic, others are more subtle. Here are 5 reasons why 2018’s labor market growth should lead to further success in 2019.
1. Bigger job markets lead to better matches
When more jobs are available, workers are better able to change jobs when desired and optimize their labor decisions. This benefits both individual workers and companies by causing jobs to go to the best-suited workers who are most productive in them. Several studies have shown quite convincingly, both here and abroad, that the productivity of workers is strongly correlated with the number of jobs in their local labor market. In other words, employment growth may lead to productivity growth that, in turn, fosters future economic growth.
2. Better matches encourage more people to enter the job market
When more Americans obtain jobs, work experience, and skills training, they are both better off today and more employable in the future. This virtuous cycle extends to the community as well. Friends, neighbors, and children tend to make themselves more employable when they see the increased benefits to investing time and money in developing their skills. For example, expansions in pilot hiring and pay increases over the past few years have drawn more people to enter flight school. The number of pilot students jumped to 150,000 in 2017 and rose further in 2018, after remaining relatively stable at about 120,000 each year between 2010 and 2016.
3. Job growth in one sector fuels job growth in other sectors
Expanding employment in one sector also drives employment growth in other sectors. In a paper titled Local Multipliers, Enrico Moretti shows that whenever a local economy generates a new job, additional jobs are created, mainly through increased demand for local goods and services. So places that saw increased employment in healthcare, professional and business services, mining, manufacturing, and construction in 2018 will likely see increased demand for workers in education, healthcare, fitness, food, hospitality, and entertainment in 2019.
4. The labor market is not yet tapped out
Some observers suggest that employment gains eventually hit a natural limit. Surely unemployment cannot fall much lower than 3.7%? We know that it can, though, because unemployment is below 3% in many parts of the country, and just 2.1% for college graduates on average nationwide.
2018 has shown us what is possible, but we are still far away from the upper limits to our success. The prime-age employment rate has risen steadily for the past nine years to 79.7%, but it has been higher in the U.S. in the past (80.3% in 2007 before the Great Recession, and 81.9% in 2000 before the downturn of 2001), and it is higher in many OECD countries today. Under the right conditions, it should continue rising.
The share of unemployed people who were unemployed long-term (27 weeks or more) has fallen by more than 200,000 over the past year. But it is still well above what it was in 1969, the last time unemployment was this low (one-fifth compared with only one-twentieth). Under the right conditions, it should continue falling.
5. The economic headwinds of late 2018 could subside
So what about those economic headwinds I mentioned earlier? We at ZipRecruiter see many indications that they may subside. The Federal Reserve has indicated that it may reduce the pace of interest rate increases in 2019 in light of low inflation. The U.S. and China could strike a wide-ranging trade agreement that would calm uncertainty. Downturns in Europe and China, and high levels of corporate debt, are still sources of risk, but for now, default rates remain low and corporate earnings and profits—especially after-tax profits—remain very healthy.