In July, according to the Bureau of Labor Statistics, the U.S. economy picked up over 209,000 jobs. Initially, predictions had only called for 180,000 new jobs, so the actual figures were a pleasant surprise for many: For a nation nearly crippled by an unemployment rate of more than 10% just under a decade ago—compared to the current unemployment rate of 4.3%—such strong job growth is a welcome development. In fact, many economists predict that the U.S. is returning to “full employment,” or the point at which there are enough jobs for all workers and unemployment does not drag down the overall economy.
Low unemployment rates and plenty of job availability is great news for workers. Businesses, however, are finding it more difficult to fill open positions or to expand. For certain industries—such as construction, agriculture, and manufacturing—this has led to labor shortages that limit their growth.
Businesses have at least three options to deal with tight labor markets. They could forgo growth, which could lead to disastrous consequences, or they could increase wages, which has not been happening on a large scale. Typically, economists predict wage growth of 3.5-4% during a tight labor market, such as the one we’re in now; however, wages rose by just 2.5% in July compared to the previous year.
Alternatively, employers could pursue automation of jobs; after all, employers don’t need to worry about finding workers to fill job openings if a capable machine is up to the task. Plus, thanks to the ongoing wave of technological advancement, machines may soon holds jobs ranging from retail to transportation to healthcare and beyond. Employers are sometimes slow to embrace automation because of the significant up-front costs associated with it, but with so few workers available, they may not have another choice.
An expanding labor market with increased wages usually leads to inflation. Thus, the Federal Reserve may attempt to “cool down” the economy by switching their focus from very low interest rates to moderate increases in those interest rates. This is far from the end of this discussion— check back with us to keep track of all changing trends in the labor market.