The effect of employment growth and job switching on the wage disparities in the US

In a few days, February 2023 job data will be released by the US Bureau of Labor Statistics, which will provide much insight into the job openings, hires, and?layoffs during the month of January?this year. As the US job market recovers from the multiple hits it took during the COVID-19 recession, we will take a look at the relationship between wage disparities in the labor market and employment growth and job switching.

Most economic indicators point to a remarkably strong labor market in America. Over the past few months, an average of 356,000 jobs were added by US employers.?The unemployment rate?is currently at a fifty-year-low, at 3.4%. Most sectors have picked up their pre-pandemic employment levels, except for a few industries. The quits rate is as high as ever, reflecting how American workers are confident of finding new and better jobs. The real wage gains of the workers who are at the bottom of the wage distribution and the high quits rate among these workers have helped shape the labor market’s path of recovery from the Covid-19 recession.

The important US labor market indicators for these few months show us that the employment growth is still strong but is giving signs that it will slow down. The labor force participation rate and the prime-age employment-to-population ratio are still not up to the levels they were in February 2020. However, both of these figures saw a hike in 2022. The unemployment rate for American workers without a high school diploma is lower than ever before. Also, the employment rate for Black men and Latino workers has bounced back quite strongly. This makes the gap between the national unemployment rate and the unemployment rate of Black and Latino workers even smaller.

Right after the pandemic hit the US, the number of people quitting their jobs in America rose to record highs. While some people moved from their cities, others quit jobs that felt unsafe during the virus outbreak. Many individuals had to take on new caregiving responsibilities while others started their own enterprises or chose a different career path. The number of people who shifted their careers to entirely new industries also rose during these years. Although the number of quits and the quits rate decreased during the year 2022, these figures are still well above their pre-pandemic levels.

One of the major reasons why workers of color and those with lower levels of formal education change jobs is because they often get sorted into lower-quality occupations. The reasons behind the high turnover rates in industries such as?retail, leisure, and hospitality?which pay less to their employees, are:

• Inadequate pay
• Insufficient?benefits
• Lack of opportunities for?career advancement
• Unsafe working conditions
• Undesirable working environments

US workers were blessed with faster nominal wage growth due to the fast recovery of the labor market from the effects of the pandemic. Retail, leisure, and hospitality industries experienced the fastest wage growth between December 2019 and December 2021. According to the Economic Policy Institute, the ones who experienced real wage gains were the employees who were at the bottom 30 percent of the wage distribution.