Today's employment report from the Department of Labor shows
both strengths and weaknesses in the economy. For the month of
August, workers' earnings rose and unemployment remained low. At
the same time, the turmoil in the housing sector led to a net loss
in jobs. However, these statistics mask a large increase in
American workers' well-being over the past generation due to an
increase in leisure time. Nonetheless, with the economy showing
signs of slowing, Congress should not enact policies that would
harm the economy. Congress should not raise taxes, increase the
regulatory burden, or enact laws that would make energy more
Moderate Growth in Employment and
The report sends mixed signals about the strength of the
economy, despite the rise in subprime mortgage defaults and the
slowdown in the housing sector. The economy lost 4,000 jobs in
August, primarily in the construction and manufacturing sector. This
was the first time in almost four years that businesses shed more
jobs than they created. Almost all of the jobs lost in the
construction sector involved residential construction, a result of
the weakness in the housing market. Manufacturing continued its
long-term employment decline, shedding another 46,000 jobs.
Surprisingly, local governments removed 32,000 education positions,
on top of the 50,000 removed in July.
Despite the discouraging employment numbers, other figures show
a much stronger economy. Employers in the education and healthcare
sector added 63,000 new jobs during the month, and the unemployment
rate remains at the historically low level of 4.6 percent.
Low unemployment has forced companies to raise wages as they
compete to hire scarce workers. Average hourly wages rose at a 3.5
percent annual rate in August and have risen 3.9 percent over the
past year. Accounting for inflation, average hourly
wages still rose 1.7 percent in the past year.
Many commentators and policymakers argue that average wages are
a misleading measure of economic well-being. They believe that only
the very wealthy have benefited during this recovery, causing
average wages to rise despite most workers seeing no benefit. These
pundits are mistaken. The weekly earnings of the median worker have
risen by 1.6 percent over the past year-almost the same rate as the
rise in average wages.
Workers' pay consists of more than their wages or salaries.
Benefits make up 30 percent of the average worker's compensation.
Accounting for benefits, workers' total compensation has risen even
faster than their wages. Total compensation per hour in the
non-farm business sector has risen 3.0 percent in the past year,
after inflation-almost double the rate of wage and salary growth.
Despite the job losses, the economy shows signs of strength with
low unemployment and rising wages.
More Leisure Time
Workers' standards of living have also increased in ways that do
not show up in employment statistics. Contrary to popular
perceptions, Americans today work fewer hours and enjoy far more
leisure time than they did a generation ago.
Between 1965 and the present, the amount of time the average
working-age American spent working at home and in the marketplace
fell by 8 hours a week. During that same period, the amount of
time that working-age Americans spent enjoying leisure
activities-entertainment, social activities, relaxing, napping,
eating, and playing with children-rose by 7 hours a week.
This represents a substantial increase in the amount of time
workers spend enjoying their own pursuits. The increase adds up to
an extra 7 to 9 weeks of additional paid vacation a year. If
Americans chose to work those hours instead, the typical worker's
pay would rise by between $5,000 and $5,500 a year.
However, leisure time has not increased evenly across the board.
In the 1960s, high- and low-income Americans enjoyed roughly the
same amount of leisure. Today, Americans with more than a high
school diploma enjoy more than 4 hours less leisure time than
Americans with a high school diploma or less. High-income
families have seen smaller leisure gains over the past generation-a
mirror image of the increase in wage inequality during this
The economy has real strength, despite last month's job losses
and the problems in the housing market. Unemployment is low, and
businesses and earnings are rising for most workers-not just for
the wealthy. Counting benefits, total compensation is rising even
more quickly. Accounting for leisure time, American workers are
doing even better than these statistics imply. Low-income workers
have benefited the most from increased leisure. The economy is
showing signs of weakness but is still improving the living
standards of most Americans.
This would be a terrible time for Congress to do anything that
could tip the economy into a recession. Many activists want
Congress to raise taxes to pay for more government spending on
their favorite programs and to redistribute wealth. Other activists
want Congress to pass more regulations, especially ones that would
raise the cost of energy for businesses and consumers. Congress
should reject these entreaties. Tax increases reduce the incentive
to save and invest. Higher energy costs make production more
expensive. Both would damage an economy that has improved the lives
of most Americans and has given them more time with their
James Sherk is
Bradley Fellow in Labor Policy in the Center for Data
Analysis at The Heritage Foundation.
Ibid, inflation adjusted using the CPI-U-RS. Note that the
BLS has not yet released inflation data for August, so this figure
is for real hourly wage growth between July 2006 and July 2007.
BLS average hourly wage figures are for production and
non-supervisory workers only. Consequently they already exclude the
pay of many of the wealthiest workers, such as management.
Heritage Foundation calculations using data from the Bureau of
Labor Statistics, "Usual Weekly Earnings of Wage and Salary
Workers," Table 1, July 19, 2007, at www.bls.gov/news.release/wkyeng.toc.htm.
The median worker is the worker in the middle of the wage
distribution. Half of workers earn more than the median and half
earn less. Therefore, the median wage is unaffected by changes in
the wages of only wealthy workers, unlike the average wage.
Authors' calculations using data from the Bureau of Labor
Statistics, "Employer Costs for Employee Compensation," June 21,
2007, at www.bls.gov/news.release/ecec.nr0.htm. The figure
is the ratio of total benefits to total compensation for all
Heritage Foundation calculations using data from the Bureau of
Labor Statistics, "Productivity and Costs," Table 2, September 6,
2007, at www.bls.gov/news.release/prod2.toc.htm.
The figures are from Q2 2006 to Q2 2007.
Mark Aguiar and Erik Hurst, "Measuring Trends
in Leisure: The Allocation of Time Over Five Decades," NBER
Working Paper No. 12082, March 2006, pp.14-18, at www.nber.org/papers/W12082.
Ibid, pp. 26-29 and Table 6.