Total Labor Income and the State of the US Employment Market

Discussion of U.S labor data often focuses on non-farm payrolls and the level of unemployment.  Other parts of the data set, like average hourly earnings and hours worked, tend to get less attention.  Looking at them holistically can give a deeper insight into the state of the U.S. employment market.

The total amount of money that Americans earn from working can be summed up as follows:

The number of people working multiplied by their average hourly earnings multiplied by the average number of hours worked.

The October employment report reveals the following about the U.S. labor market:

  1. The number of people working is still down 6.2% year on year. The U.S. added back another 638,000 jobs in October but progress slowed in recent months and millions are still out of work
  2. Average hourly earnings are 4.5% higher than a year ago.  However, this doesn’t mean that workers have gotten raises.  Rather, it reflects that lower income workers were more likely to get laid off than higher income workers.
  3. Hours worked are 1.2% higher than a year ago.  This also implies that part-time workers were more likely to suffer job losses than full-time workers.
  4. Total labor income is still down 0.6% year on year compared to October 2019.  Normally, this number, which is not adjusted for inflation, grows at 4-5% per year during periods of economic expansion (Figure 1).
  5. On an inflation adjusted basis, total income flowing to workers is down by over 2% year on year (Figure 2).

Figure 1: Total Labor Income and its components

Figure 2: Total labor income before and after inflation

Total labor income is a narrower gauge than personal income.  Personal income includes transfer payments such as $300 billion in one-time cash payments to Americans that was included in the CARES Act, which was signed into law in late March, as well as enhanced unemployment benefits.  Total labor income includes only money earned from work.  While personal income is a better guide to consumer finances, total labor income gives a sense of what those finances look like the in the absence of fiscal support.  Enhanced unemployment benefits began to wind down in August and the one-time cash payments were distributed in the spring. With stimulus legislation stalled in Washington, the -2% growth in total labor income after inflation could signal what might befall consumer spending in the absence of further recovery measures.

Bottom Line

  • Total labor income is still down 2% year on year after inflation
  • Total labor income is a narrower gauge of household finances than personal income
  • Personal income includes transfer payments
  • Total labor income gives one a sense of how the economy might look without further fiscal support


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author(s) and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

About the Author

Erik Norland is Executive Director and Senior Economist of CME Group. He is responsible for generating economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company’s business strategy, and upon those who trade in its various markets. He is also one of CME Group’s spokespeople on global economic, financial and geopolitical conditions.

View more reports from Erik Norland, Executive Director and Senior Economist of CME Group.

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