Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Long-Term Unemployment Is Growing While Wages Rise
Transcript
- Lucas: So the May jobs report drops Friday morning, and ADP gave us a sneak peek Wednesday: private payrolls grew by 122,000 last month. That's actually a bit stronger than economists expected — a solid number. Luna: But there's a headline that caught my eye this week that's sort of the flip side of that. Long-term unemployment is surging in the U.S.. And the reporting flags hidden costs for workers and the economy. Lucas: Right — that's the puzzle we're looking at today. Wages are still growing — average hourly earnings hit $37.50 in the latest reading, up from $37.41. Median weekly earnings are at $1,204 as of early 2025. So the paycheck numbers look okay on the surface. Luna: But long-term unemployment — people out of work for six months or more — is climbing. And that doesn't show up in the headline unemployment rate. Lucas: Exactly. The U-3 rate, the one you see in every news report, counts people who've looked for work in the past four weeks. If you've been job-hunting for seven months, you're still in that number. But the longer you're out, the harder it gets to get back in. Luna: And that's where the hidden costs start. There's a well-documented phenomenon called 'duration dependence' — the longer someone is unemployed, the fewer callbacks they get, even with identical qualifications. Lucas: There's a famous study where researchers sent out fake resumes with identical skills but different unemployment durations. Someone unemployed for six months got half the callbacks of someone unemployed for one month. Same person, same résumé, just a longer gap. Luna: That's the bias. And for the worker, there's skill erosion too. If you're a software developer or a medical technician, six months out of practice means your skills degrade. Especially in fast-moving fields. Lucas: The Bank of Canada did research a few years ago — they found that a one-month increase in unemployment duration reduces future earnings by about 0.6 percent. That compounds. If you're out for a year, you're looking at a permanent earnings hit of roughly seven percent for the rest of your career. Luna: That's the scarring effect. And we're seeing it play out now. The CPI is at 332.4, up from 330.29 in the prior reading. So prices are still rising, which means even if you get a new job, your real wage may be lower than before. Lucas: Let's put some numbers on this. The employment cost index for wages hit 177.5 in the first quarter of this year, up from 176.23. So wages are growing, but the long-term unemployed aren't capturing that growth. They're stuck outside the labor market while those who stayed employed keep getting raises. Luna: And the longer they're out, the more they fall behind. It's a divergence within the same economy. The headline numbers look fine — wage growth positive, job creation positive — but the distribution is getting worse. Lucas: The Fed pays attention to this. When long-term unemployment rises, it suggests structural issues, not just cyclical softness. The 10-year breakeven inflation rate is at 2.36 percent — that's market-implied inflation expectations over the next decade. It's down slightly from 2.38, but still above where the Fed wants it. Luna: So you've got a labor market that looks tight on the surface — 122,000 jobs added in May — but with a growing pool of workers who are losing their connection to it. Lucas: And that's costly in ways that don't show up in GDP. There's the personal cost — financial stress, health problems. But there's also the macroeconomic cost: idle labor that could be producing goods and services. The Congressional Budget Office estimates that each percentage point of long-term unemployment reduces potential GDP by about 0.5 percent. Luna: So when we look at the numbers this week, we should be asking not just 'how many jobs were added?' but 'who is getting those jobs?' Are they going to the long-term unemployed, or to new entrants and people who recently lost work? Lucas: And that's actually a question we don't get a great answer to from the monthly jobs report. The Bureau of Labor Statistics does track duration of unemployment, but it's not the headline number. You have to dig into the tables. Luna: Which is part of what we try to do here — dig into the data that's hiding in plain sight. And if walking through the economy with us has made something click, listener support is what keeps this show ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. Lucas: And it genuinely helps. No pressure, just if you find value in these conversations. So back to the data — one interesting thing is that the PCE price index, which is the Fed's preferred inflation measure, is at 130.9, up from 130.38. Core PCE, which strips out food and energy, is at 129.6. Luna: So inflation is still positive, but moderating. And wage growth is still above inflation on average. But for the long-term unemployed, that doesn't matter because they don't have a wage at all. Lucas: Right. And that's the nuance. When we say 'wages are beating inflation', we're talking about people who have jobs. The median weekly earnings figure of $1,204 — that's for employed workers. It doesn't capture the zero earnings of someone who's been out of work for eight months. Luna: So the good news about wage growth is real for a majority of workers. But it's masking a pocket of real distress. And that pocket is growing. Lucas: There's also a geographic dimension. The ADP data showed that job growth was concentrated in certain sectors — services, hospitality. But long-term unemployment tends to hit harder in manufacturing and rural areas, where job openings are fewer. Luna: So your chances of being long-term unemployed depend partly on where you live and what you do. That's not new, but it's getting worse in this cycle. Lucas: One other hidden cost is the psychological toll. Research from the Federal Reserve Bank of New York shows that long-term unemployed workers report significantly lower levels of well-being, and that persists even after they find a new job. The scarring isn't just financial. Luna: And that feeds back into the economy — lower consumer confidence, lower spending. It's a vicious cycle. Lucas: The good news is that policy can help. Retraining programs, wage subsidies for employers who hire the long-term unemployed, and efforts to reduce hiring discrimination. Some states are experimenting with banning the check-box that asks about unemployment duration on job applications. Luna: Banning the box for unemployment, similar to what some places did for criminal records. I've seen research that suggests that can increase callback rates for long-term unemployed workers by 10 to 15 percent. Lucas: So there are tools. But the first step is recognizing that the headline numbers don't tell the whole story. When we see wage growth and job creation, we should also ask who's being left behind. Luna: And that's the question we'll be asking when the May jobs report comes out Friday. We'll be watching the duration of unemployment figures closely. Lucas: Same here. And if you want to dig into the data yourself, the BLS releases the Employment Situation Summary at 8:30 Eastern. The tables on unemployment duration are Table A-12. Worth a look. Luna: We'll be back next time with another angle on the economy that's hiding in plain sight. Until then, keep an eye on those numbers.