Making Sense: Are Drug Tests A Labor Market Problem?


Today’s ADP Employment Change report indicates that not much has changed within the job market. According to ADP data, the U.S. private sector added 178,000 net new jobs in July. This was lower than the Street consensus estimate of 190,000 and it was below the revised print of 191,000. However, the June read was revised higher from, an initial print of 158,000 to bring it closer to the June Nonfarm Payrolls print of 222,000.


Details of the report were:

  • Natural Resources and Mining: +3,000.
  • Construction: +6,000
  • Manufacturing: -4,000
  • Trade Transport: +24,000
  • Information: +8,000
  • Financial Activities: +13,000
  • Professional and Business Services: +65,000
  • Education and Health: +43,000
  • Leisure and Hospitality: +15,000
  • Other Services: +5,000

According to ADP, Medium-sized businesses led the way in hiring:

  • Small businesses: 50,000
  • Medium businesses: 83,000
  • Large businesses: 45,000

It appears as though the U.S. economy is entrenched in a high-100,000 jobs per month paradigm. Whether this is “good” or not depends on with whom you speak. I have read opinions, regarding how many jobs are necessary to keep up with U.S. population growth, which range from nearly 200,000 jobs per month to fewer than 100,000 jobs per month. The true figure is anyone’s guess. However, job growth does not appear to be such that it has tightened the labor market to the point that wage growth is surging. This may be due to technology which allows businesses to get by if they cannot find qualifiedworkers. “Qualified” can mean different things in different industries and for different occupations. For white-collar professionals, “qualified” can mean at least a bachelor’s degree. For manufacturing and low-wage service jobs, “qualified” can mean being able to pass a drug test. Bloomberg News reports that many businesses are having difficulty finding applicants who can pass a drug test.

My wife is a health educator. She is aware of salaries in the health industry. What she has found is that health industry jobs which require four-year degrees and several years of experience are paying between $30,000 and $40,000 a year, on average, in our corner of Eastern Pennsylvania. Have a graduate degree and you might make $50,000 to $60,000, on average. This is not much higher than what these health industry jobs paid a decade ago, in nominal dollars. In real dollars, wages have barely risen. That businesses are reluctant to pay-up for “qualified” applicants tells me that the filling of many job openings is more of a want than a need. Technology and the reduced bargaining power of workers allows many businesses to do more with less.

The other day, I set off on a day trip on one of my motorcycles. What jumped out at me was the number of “We’re Hiring” signs I saw. It seems that nearly every fast food restaurant is desperate for workers. Auto parts chains, such as Auto Zone and Advance Auto are also hiring. I suspect they are having difficulty finding workers who will work for minimum wage and can pass a drug test.

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Thomas Byrne serves ad the Director of Fixed Income for Wealth Strategies Management LLC. Thomas brings 26 years of financial services experience to Wealth Strategies & Management LLC. He spent the last 23 years as Director of Taxable Fixed Income for Citigroup, Inc. and predecessor firms in New York, NY. During the course of his long fixed income career, Mr. Byrne was responsible for trading preferred stock, corporate bonds, mortgage backed securities, government debt, international debt and convertible bonds. Mr. Byrne was also responsible for marketing, sales, strategy and market commentary within the taxable fixed income markets. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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