U.S. workforce growth may give Fed one more reason to go slow on rates

By Jason Lange

RALEIGH, N.C. (Reuters) - Americans with a high school education or less are returning to the labor force in larger numbers, a trend that points to a broadening of economic growth, but could also keep wage growth subdued and stay the Federal Reserve's hand in its hiking cycle.

The Federal Reserve meets this week and is expected to leave rates on hold. One factor it watches is slack in the labor market to see how much room the economy has to grow without triggering inflation.

The share of those 25 and older without high school diplomas who have jobs or are looking for one has risen 1.4 percentage points to 46.2 percent in six months to March, close to levels before the 2007-09 recession. For high school graduates, that share has risen by a half percentage point, while among those with college degrees the rate has remained virtually steady.

The return of less-educated workers to the labor force is a sign that the economy is still healing from the recession.

Americans with no more than a high school education accounted for nearly four out of every five jobs lost in the recession, according to research by economists at Georgetown University. Since such workers are considered at the greatest risk of being permanently shut out of the labor force, it fueled concerns that strains in the labor market might emerge even during spells of relatively modest economic growth.

Yet a Reuters analysis of Labor Department data suggests there could be more labor market slack than the unemployment rate of 5 percent may suggest because the improving economy has been spurring less-skilled workers to look for jobs again.

To count as part of the labor force, a worker needs to have held down a job or have actively searched for one in the last four weeks. Over the past year, in any given month there were about 6 million Americans who did not meet those criteria, a million more than before the recession. Until recently, Nathan Patterson, 24, who left high school in Illinois without a diploma and later moved to Raleigh, North Carolina, was often one of them, discouraged by poor job prospects from looking for work consistently.

Last year, though, a growing number of job openings posted in the area made him try again and in January he found a job with a company that processes scrap steel.

"I went from having nothing to having something," he said.

Patterson makes $10 an hour sweeping up, well below the national average of $25.43 an hour, and trains to operate cranes and steel-cutting torches.

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North Carolina, where unemployment spiked more than nationally during the downturn and more workers dropped out of the workforce, has recovered lost ground faster thanks in part to strong growth in low-wage sectors such as retail, leisure and hospitality industries.

Nationally, they have created nearly a third of new jobs over the last year, although they only make up about fifth of total employment. Those industries also tend pay 30-40 percent less than the national hourly average, which helps explain sluggish national wage growth in the past months and absence of significant cost pressures in the economy.

"There is more room to run in this cycle and that means the Fed can afford to go slower on rate hikes in the beginning," said Bank of America Merrill Lynch economist Michelle Meyer.

Economists polled by Reuters expect the Fed to raise rates twice this year, with the first move possibly in June, proceeding with caution because of concerns about the impact of global economic slowdown on the U.S. economy.

Minutes from the Fed's March 15-16 meeting show policymakers discussed the recent increase in labor participation and that some noted that slack remained in the labor market.

That slack, in large part is a result of gradually improving labor force participation driven primarily by more less skilled workers looking again for jobs, and many finding them.

Across the economy, companies continue to add about 200,000 jobs a month but the jobless rate has stayed roughly steady since October as around 400,000 people enter the work force each month, many finding jobs right away.

In North Carolina, local officials say they see more unemployed people going to community college to acquire skills that will help them find a better job, rather than to wait out a weak job market, which happened a lot during the recession.

Jackie Gregory, 25, for example, lost her job as an administrative assistant in November 2014 and spent almost a year out of work because some jobs required a college degree she did not have and some just did not pay enough to cover child care expenses. Then she took a three month break to complete a pharmacy technician course at a local community college and with her qualifications in hand landed a $12.26 an hour job at a pharmacy's call center.

"If I didn't get that job I would be barely making it right now," she said.

(Reporting by Jason Lange; Editing by Tomasz Janowski)