Making sense of good job growth and stagnant wages
The Labor Department reported on Friday that the U.S. added 173,000 jobs in August, with the unemployment rate falling to 5.1 percent. In July, the economy added 215,000 jobs and unemployment held steady at 5.3 percent. Average hourly earnings rose 0.2 percent month over month.
Job creation has slowed moderately in 2015. For the past six months, job creation has averaged 213,000 jobs per month. For the full year (July 2014-July 2015), job creation averaged 274,000 jobs per month. Over the past 12 months, the unemployment rate has fallen nearly 1 percent, from 6.2 percent to 5.3 percent, approaching the level the Federal Reserve considers “full employment” in the economy.
But there is one anomalous data point in the overall job-market recovery: wages. Average hourly wages have been increasing very slowly since 2010 — in a narrow range between 1.8 percent and 2.2 percent on an annual basis. After adjusting for inflation, real wages for most workers have barely kept pace with prices.
“Wage growth over the entire recovery has been unbelievably anemic,” says Josh Bivens at the Economic Policy Institute, in a teleconference where EPI released a new analysis of wages and productivity in the recovery.
As the Federal Reserve considers whether to begin raising interest rates in September, or wait until later in the fall (October or December) or into early 2016, Fed governors will be looking for any signs that wage pressures are building. The current absence of wage inflation suggests that the job market might not, in fact, be as strong as the job-creation numbers and falling unemployment rate suggest.
Employers don’t appear to be having widespread trouble filling jobs. And except in a few high-skilled employment sectors, they’re not generally needing to offer higher compensation or more lucrative benefits to attract and retain workers, says analyst Mark Hamrick at Bankrate.com.
“According to the recent Beige Book, workers are readily available in many sectors,” Hamrick says. “And the number of people who are working part time, but would like full time work, is more than 6 million.”
Bivens and other progressive economists warn that if the Fed starts raising interest rates now, it could stifle job growth and keep wages from going higher.
The text has been updated to reflect data for August from the Bureau of Labor Statistics.
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