The Economy Isn't Just Adding Jobs. It's Adding Good Ones.

(Bloomberg Opinion) -- Even if the rate of U.S. job growth is slowing this year, there's encouraging news hidden in that overall number.

A large chunk of the deceleration is attributable to a near halt in the growth of lower-paid jobs, despite those positions continuing to show strong wage growth – a sign that perhaps for lower-paid workers we are seeing dynamics approaching full employment. At the same type, the continued steady growth in higher-paid knowledge jobs should embolden those who believe this expansion can continue for quite a while longer. And along the way, more Americans in both categories are finding decent-paying jobs.

When people talk about the labor market slowing, what they're really referring to is the past six months. The recent peak in the year-over-year pace in jobs growth occurred in January at 2.82 million. Since then it has slowed somewhat, largely shown in the weak jobs reports in February and May, in which both months resulted in fewer than 100,000 jobs being added in the economy.

But as the economic cycle has become more advanced, the composition of the labor market continues to change. Nowhere is this more evident than in the lowest-paid industries – retail and leisure/hospitality. From January 2011 through January 2019, those two industries added on average 600,000 jobs per year, or 50,000 per month, with the pace of growth beginning to slow noticeably in 2017. In the past six months, however, those industries have shown no growth. If they had grown at a similar pace as they did in 2017 or 2018, overall job growth would have shown very little deceleration.

Some might think that the halt in job growth here might be a sign of looming economic weakness, but wage growth for both industries remains robust, driven both by a tight labor market for low-wage service workers and by minimum wage hikes around the country. Martha Gimbel, a research director at Indeed, notes that wage growth for low-paid workers continues to accelerate and outpace wage growth for higher-paid workers.

And for well-paid knowledge workers in the professional and business services sector, which employs over 21 million people, job growth remains steady, continuing to chug along at a growth rate of around 40,000 per month, much like it has for the past five years. Gimbel notes that while middle-wage job growth has slowed a bit, likely due to weakness in the global economy impacting the manufacturing sector, job growth for middle and high-paying jobs continues to outpace job growth for lower-paid jobs.

This means labor market dynamics still support above-trend growth; it's just that the nature of the growth may have to change. The continued rise in wages for lower-paid workers combined with low levels of people seeking work who are not already working may mean that lower-paid jobs are no longer a significant driver of overall employment growth.

But these dynamics are not appearing in the better-paying sectors. Despite employer complaints of labor market shortages, there still seem to be plenty of workers willing to take good-paying jobs without overall wage growth for those workers exceeding 2-3%. Tens of millions of lower-paid workers could train for those jobs and would undoubtedly be willing to leave a job paying $12 an hour for one paying much more than that.

For the entirety of this expansion, policymakers have been focused on finding jobs for the unemployed, and for drawing people back into the labor force. As more measures of labor market slack hit generational or multi-decade lows, the emphasis should shift to a different kind of slack: the people who are employed but could be doing more productive, better-paying jobs if they were given the opportunity.

The slowing overall rate of job growth shouldn't spook policy makers. Until we see an acceleration in wage growth for higher-paid workers and inflation, there's no reason we can't continue to push for a stronger economy and labor market.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.