What Does Labor Market Tightness Mean at the Local Level?

June 30, 2018

In today’s tight labor market, employers are digging deep to bring in traditionally disadvantaged groups – the long-term unemployed and those with less education, among others – but when it comes to geography, it’s still very much a case of winners and losers.

Indeed, recent work on the wage-growth puzzle highlights the value of viewing the labor market through a local lens. A recent report by the San Francisco Fed on wage growth found that low unemployment can still be seen to drive wages up when one looks at city-level labor data, even if this relationship (known as the Phillips curve) is puzzlingly absent at the national level. That aligns with the perspective of individual employers, who view labor markets primarily as fragmented (to use the economics term) or segmented (to use the business term) along dimensions of geography and occupation type and, to a lesser extent, of industry.

Aside from wage dynamics, what does the landscape of current local labor market conditions look like? Just comparing city-specific data employment and unemployment levels in May for 49 selected metropolitan areas, some strikingly different profiles quickly emerge.

General Observations

  • 17 out of 49 metros had unemployment rates above the national average of 3.6% (not seasonally adjusted).
  • 11 out of 49 metros have seen 12-month payroll growth above the national average of 1.6% (also not seasonally adjusted).
  • 6 out of 49 metros had both above-average payroll growth and below-average unemployment. These metros are going from strength to strength.
  • 5 out of 49 metros had above-average payroll growth but above-average unemployment too. These metros did not always see the largest declines in unemployment rates over the prior 12 months, suggesting they are bringing more people into their workforce, whether by pulling discouraged local workers off the sidelines or attracting workers from other cities.

The Highs and the Lows

  • Consistent with prevalent media narratives, San Francisco, Dallas, Seattle, and the Boston area all appear to be among the hottest job markets: They each had above-average job growth and low unemployment rates.
  • Despite being on the short list for Amazon’s HQ2, Newark is still in doldrums, scoring weaker-than average on both measures. The same goes for the urban core of Washington D.C., although the surrouding areas look much stronger. Without even the prospect of Amazon’s white knight, Detroit, Michigan and Gary, Indiana are even deeper in the doldrums.

While the national labor market looks exceedingly tight, local statistics reveal a wide range of variation. Despite all the progress in online job search and telecommute-enabling technology, the U.S. labor market remains highly fragmented. That fragmentation suggests opportunities for those employers who can exploit the local variation with strategies that outsmart the competition and technology that outperforms it; it also spells opportunity for those job seekers who decode those strategies and appeal to them.

In any case, employers need quality intelligence to direct their efforts, and despite advances here too, quality intelligence on the supply side of the labor market is notoriously hard to come by — for reasons we’ll leave for another post. While ongoing policy debates about labor mobility rightly look at macro-level questions of housing costs, relative bargaining power, and the like, the role of technology and strategic data analysis remains critical too.

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