Labor market pulse: Hiring strength for lower-income workers

A look into the overall U.S. hires rate using Vanguard’s data

Vanguard’s proprietary data on enrollments in 401(k) retirement plans indicate the pace of hiring has increased recently. The hires rate—which refers to new hires as a share of existing employees—climbed to 2.4% in February 2024, a return to just shy of its level in June 2023.

“We are seeing a turning point in the data with the recent uptick in hiring,” said Vanguard Investment Analyst David Pakula. “That said, employers are still hiring at a slower pace than during pre-pandemic times and the tight labor market of 2021 and 2022.”

The hires rate according to the Job Openings and Labor Turnover Survey (JOLTS), published by the U.S. Bureau of Labor Statistics, has been trending down recently, with its latest reading at 3.6% in January. Similarly, Vanguard data showed a general slowdown in hiring in 2023, prior to the recent increase.

Vanguard data indicate hirings have risen in recent months

Notes: The hires rate refers to new hires as a share of existing employees. The Vanguard hires rate is calculated at the firm level and is based on new enrollments in 401(k) retirement plans administered by Vanguard divided by the number of all active 401(k) plan participants in a given month. New hires are recorded based on their hire date rather than their retirement plan enrollment date. The last 12 months of the Vanguard hires series are adjusted upward to account for an empirically observed lag in 401(k) enrollment times for new hires. The hires rate series is seasonally adjusted using the X-13ARIMA method. The data set represents a balanced sample of firms of all sizes across all sectors of the economy that offer retirement plans, which Vanguard has administered since January 2003. JOLTS data are based on a nationally representative survey of 21,000 nonfarm business and government establishments. The gray bars indicate economic recessions, as identified by the National Bureau of Economic Research.

Source: Vanguard, as of February 2024.

A new lens reveals a strong job market for low-income workers

“Using our proprietary data, we can now look at hiring trends by income level—a view that’s not available in public datasets—to offer a more nuanced view on the dynamics of the labor market through October 2023,” said Pakula.

Our Vanguard 401(k) data indicate that hiring rates for the bottom third of workers, who make below $55,000 per year, are generally higher than those for higher-income workers. This is consistent with JOLTS data showing greater labor market churn in lower-wage sectors, such as leisure and hospitality and retail trade.

In addition, the hires rate for the bottom income tercile of workers has gained momentum over the last few months for which we have data. In contrast, hiring for the middle and top third of employees declined throughout 2023. (Incomes for Vanguard retirement plan participants generally skew higher than those for the general population.) Thus, the decline in the overall hiring rate in 2023 appears to have been driven by a slowdown in hiring among middle- and higher-income workers.

“While hiring rates for high-income workers are slowing, we haven’t seen a material pickup in the unemployment rate for that income group,” said Adam Schickling, a senior Vanguard economist. “We’ve seen layoff announcements for high-income workers, most notably in the technology sector, but they have often been able to quickly find new employment as their skills are in demand.”

The pace of hiring accelerates for lower-income workers

Notes: The hires rate by income percentile refers to new hires as a share of existing employees. The Vanguard hires rate is calculated at the firm level and is based on new enrollments in 401(k) retirement plans administered by Vanguard divided by the number of all active 401(k) plan participants in a given month. The hires rate series is seasonally adjusted using the X-13ARIMA method and transformed into a three-month moving average. Income is inferred from data on participants’ 401(k) savings rate elections and realized contributions. Data is reported on a lag because of data coverage limitations.

Source: Vanguard, as of October 2023.

The rise in wages for lower-income workers

Strong demand for lower-income workers has coincided with faster growth in wages for that group than for most higher-income workers. During the onset of the pandemic, lower-income workers concentrated in face-to-face services sectors were more at risk of layoffs than higher-income earners who had more flexibility to work remotely.

Ultimately, however, a combination of elevated consumer demand from fiscal stimulus and many face-to-face services sector workers transitioning to other industries led to worker shortages being the most severe in lower-income occupations, which drove wages for that work significantly higher. At the same time, many higher-income workers accepted slower wage growth as a tradeoff for remote work flexibility. These dynamics have all contributed to the faster rise in wages for lower-income workers.¹

Our labor market analysis supports our economic forecast of a resilient U.S. consumer—thanks in part to higher real wage growth, particularly for lower- and middle-income workers—and above-trend GDP growth in 2024.

About Vanguard hires data

Vanguard’s proprietary hires data are rooted in real-world 401(k) retirement plan participant data.

It should be noted that Vanguard hires data do not capture the whole U.S. economy, since roughly only half of workers—a group disproportionately composed of higher-income workers—have access to employer-sponsored retirement plans. Moreover, employers that offer 401(k) plans tend to be larger, more mature, and concentrated in certain industries.

1 According to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker, wages grew 7.4% for the bottom quartile of workers in 2022 compared with 4.9% for the top quartile. For 2023, the wage growth figures were 5.9% and 5.4%, respectively.