- The latest jobs report from the Bureau of Labor Statistics revealed a 50-year low for the US unemployment rate. But it also showed wage growth slowing to its slowest pace in more than a year.
- The phenomenon of slowing wage growth and rising employment levels has persisted for years, and is likely the result of several trends in the national labor market.
- Here are some of the factors likely stifling wage growth around the US, and why a low unemployment rate isn’t necessarily linked to improved earnings.
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The latest jobs report from the US Bureau of Labor Statistics showed the unemployment rate dropping to a 50-year low in September. But the data isn’t wholly positive.
The US added 136,000 nonfarm payrolls last month, lower than analysts’ 147,000 estimate and August’s 168,000 gain. Average hourly earnings grew by 2.9% from the year-ago period, the metric’s slowest pace of growth since July 2018 – and just 1.2 percentage points higher than the last recorded US inflation rate.
And though the unemployment rate may be at a five-decade low, slowing wage growth is a dire threat to the nation’s economy. Lower income generally begets decreased spending, kicking off a cycle that could threaten employment, investment, and economic growth.
Here are some reasons why a lower unemployment rate hasn’t brought steady wage growth, and what could be pulling average hourly wages down across the US:
The labor market as a whole might be weaker than the 3.5% unemployment rate implies. While the metric is critical to measuring economic growth, the prime-age labor force participation rate lends a closer look at who is working and how that’s changed over time.
The prime-age participation rate tracks those aged 25 to 54 who are employed as a proportion of those in the age range available to work.
The latest BLS report pegged the prime-age participation rate at 82.6% in September, nearly hitting highs not seen since the 2008 financial crisis.
The latest reading signifies more prime-age individuals are entering the work force after post-recession woes pulled the rate as low as 80.6%. As more people apply to enter the workforce, companies can delay wage increases as they no longer need to entice potential employees with raises.
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America’s middle-income jobs – such as those in construction, production, and repair – are disappearing as wage polarization sets in. The New York Federal Reserve detailed the trend in a December 2018 report, showing the state’s labor force becoming more saturated in low and high-income roles in the years since the 2008 crisis.
Globalization and automation have wiped out much of America’s manufacturing industry, and as it’s more difficult to scale the job ladder than descend it, many of the workers have been forced into lower-paying roles. The trend may explain the slowing wage growth seen nationwide.
The security trade-off
Private sector union membership has plummeted from roughly 20% in the early 1980s to 6.4% in 2018. The average pay for workers in unions is typically higher than nonunion workers, making the drop in union membership a fairly direct driver of lower average wage growth.
Unions even benefited those not involved, as industries and areas with large union presences typically pay all workers more compared to those where collective bargaining is scarce. The lack of organization between workers grants companies greater leeway for slowing wage growth.
Inflation vs. legislation
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The gap between the minimum wage and the minimum wage adjusted for inflation was widest in the 1970s, and has since gradually closed as minimum wage laws have been driven by state legislatures more than the federal government.
The federal level of $7.25 hasn’t changed since 2009, and inflation has nearly caught up with that level over the past decade.
If workers aren’t able to improve their pay through education, collective bargaining, or moving up a corporate ladder, increasing the minimum wage is a safe way to ensure American workers earn a steady living wage.
Though opponents of such legislation argue raising the wage floor would stave off job creation, the latest research from the New York Fed noted the state’s gradual wage hikes haven’t killed off payrolls.
It’s unlikely any single trend noted above is responsible for slowing wage growth across the US. Yet it’s worth considering them as parts of a whole as the US job market faces the puzzling phenomenon of high employment and stagnant wage growth.