Labor market pulse: Lower-income workers gaining ground

Vanguard’s proprietary data on enrollments in 401(k) retirement plans point to an uptick in the pace of hiring. The hires rate—which refers to new hires as a share of existing employees—reached 2.8% in April 2024, up from 2.4% in March 2024 and at its highest level since October 2022.

However, the Job Openings and Labor Turnover Survey (JOLTS), published by the U.S. Bureau of Labor Statistics, has shown a downward trend in the hires rate, with the latest reading at 3.5% in March.

Both JOLTS and Vanguard data showed a general slowdown in hiring throughout 2023.

The hires rate for the bottom third of earners—those with annual pay below $55,000—has generally surpassed that of higher earners. Although JOLTS does not provide data by income level, data from that survey also indicate greater labor market activity in lower-wage sectors such as leisure and hospitality and retail trade. (It is worth noting that Vanguard retirement plan participants typically have higher incomes than the broader U.S. population.)

“While demand for low-paid workers remains elevated relative to pre-COVID-19 levels, hiring activity in higher-paying occupations contines to moderate,” explained Adam Schickling, a senior Vanguard economist. “This is partly a reflection of lower-paying service industries still trying to recover from the COVID shock—a challenge since many of those workers have transitioned to higher-paying opportunities. Nonetheless, it’s clear that higher-paying industries are taking a considerably more cautious approach to hiring relative to the hectic 2021 to 2022 hiring surge.”

"Using our proprietary data, we can now look at hiring trends by age cohort," Vanguard investment analyst David Pakula said. “Except during the COVID-19 pandemic, hiring rates across all three age groups have tended to closely track one another over time. In recent months, though, there has been a modest uptick in hiring among younger workers, while hiring rates have been flatter for older workers.”  

These relative similarities in hiring trends by age stand in contrast to the noted divergence in the hiring patterns between low-paid and higher-paid workers. “Income, rather than age, seems to be the differentiating factor in hiring trends right now,” said Fiona Greig, Vanguard’s global head of investor research and policy. “Workers of all ages are seeing a rise in hiring, but it’s really just lower-income workers who are driving the increase. The job market has softened for the top two-thirds of earners.”

Total hires and the hires by income and age have several methodological differences due to data limitations when pairing firm hire rates with worker attributes. The total hires chart ends in April 2024 and contains a rolling sample of 1,269 firms for which Vanguard provided 401(k) plan recordkeeping services for the prior 24 months. We also use the X-13-ARIMA-SEATS adjustment to remove seasonal patterns in the data. The income- and age-based charts plot data through March 2024 and are based on a monthly cross-section of 401(k) clients because of data availability constraints. The income cut reflects a monthly sample of 1,745 firms, and the age cut contains a sample of 1,980 firms. For those two charts, we calculated a three-month moving average in addition to the X-13-ARIMA-SEATS adjustment to smooth the data given sample-size limitations. These methodological differences may lead to differences in trends between the aggregate hire chart and the income- and age-based charts.

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.

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