I’ll get into the weeds momentarily, but the three reasons are:
— There’s still slack in the job market.
— Productivity growth is slow.
— Many workers have too little bargaining clout in our highly unequal economy.
I’ve got policy solutions for each one of these, by the way, so you’ll definitely want to postpone your weekend and read through to the end.
First, the facts. Friday’s jobs report showed that the unemployment rate fell to 3.9 percent last month, its lowest level since late 2000. The report also showed, however, that wage gains, before inflation, have been stuck at 2.6 percent. Moreover, as the figure below shows, even as the job market has tightened, this wage series — the year-over-year hourly wage growth for private-sector workers — has been jiggling about 2.5 percent for about two years running.It is also worth noting that consumer inflation has been running just slightly below this level (2.4 percent, year-over-year, in March), meaning that in buying-power terms, hourly pay is up by pennies over last year.v
Shouldn’t the tighter job market result in faster wage growth?
To some extent, it clearly has. As you see in the figure, after getting slammed in the recession (shaded area) and initially weak recovery, nominal wages finally started to accelerate around 2015, picking up their pace from about 2 to 2.5 percent, where they’ve since languished.
Other dynamics, besides the falling unemployment rate, are in play here, including people entering and leaving the job market (lower-wage workers coming into the job market can reduce the pace of wage gains). Also, other series are more optimistic than this one. One series I like to trot out in this context is my wage mash-up, a smushing together (that’s the technical term) of five different wage series. It shows more steady acceleration, but this far into an expansion that’s closing in on full employment, its growth pace remains below past expansions at this point.
- Washington Post