More solid job gains, but no real wage growth

Jared Bernstein

Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

In the latest solid report on the conditions in the US labor market, payrolls grew by 213,000 in June, and labor force participation ticked up two-tenths, as more people were pulled into the improving labor market. This led to a two-tenths tick-up in the unemployment rate to 4 percent (really, 30 basis points up, from 3.75% to 4.05%). Wage growth stayed at 2.7 percent, the same pace as last month, and the average since last December. It is also worth noting that inflation is now growing at about the same rate as wages, so, in one of the less impressive aspects of the current job market recovery, real hourly pay is flat.

As the economic expansion that began in June of 2009 enters its tenth year, the enduring recovery has moved the job market closer to full employment. However, the key message from this report, is that despite many economic estimates to the contrary, there still appears to be room-to-run. That is, various indicators suggest we’re closing in on full employment, but not quite there yet. These indicators include:

–Average job gains of about 200,000 per month over the past year (see JB’s official jobs-day smoother which averages monthly payroll gains over different intervals). The historical pattern is for the pace of job gains to slow more than it has when we’re getting to full capacity in the labor market.

 

–Though wage growth has clearly ticked up a bit—it has moved from 2 percent, to 2.5, to now, 2.7 percent—it has not picked up as much as we’d expect at full employment. Our current low productivity growth regime is a constraining factor, and we’re certainly hearing a lot from employers about labor shortages. But before we take that age-old complaint, we need to see more wage pressure. Employers almost always complain about labor shortages, yet the data suggests they’ve been quite reluctant to raise pay to get and keep the workers they need.

–The fact that the unemployment rate has long been below the rate most economists believe to be consistent with stable inflation means we should be seeing inflation growing much faster than has been the case. As noted, price growth has ticked up with wage growth, but the Fed’s preferred price gauge is only now growing at their target level of 2 percent (note: unlike the deflator I applied to wages above, this gauge leaves out energy and food prices).

Turning back to the closely watched wage series, the two figures below show the annual growth rates in nominal private sector hourly pay and the pay for middle-wage workers (blue-collar manufacturing workers and non-managers in services). The six-month moving average in both cases reveal the recent acceleration as tightening job market has given wage earners more bargaining clout.

 

 

But as the next figure shows, inflation has ticked up as well (I forecasted the value for the June CPI as it isn’t out yet), and is now growing at the same rate as the hourly pay of middle-wage workers.

 

The punchline is that real hourly pay is flat, which should not be the case as we enter year 10 of this expansion. A lot of working families are legitimately asking when they can expect to benefit from what is billed in the financial and political pages as a uniquely robust recovery.

Factory jobs got a nice bump, up 36,000 in June, and I saw no evidence in the report of industries in the tradeable sector as yet affected by rising trade tensions. However, as our trading partners retaliate with tariffs of their own, and as Trump’s tariffs raise the costs of imports that go into to US production (e.g., car parts), employment in the trade-impacted sectors must be on the watchlist.

In sum, the US job-generation machine continues to post impressive numbers. In fact, these gains are consistent with a job market that has more room-to-run than many believe to be the case. But the wage story remains unsatisfying from the perspective of working families, especially when we look at real wage gains, or the buying power of paychecks. Since this is, of course, what matters most to people regarding living standards, we must recognize that the recovery, even in year 10, has yet to reach everyone.

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow.  From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute in Washington, D.C. Between 1995 and 1996, he held the post of deputy chief economist at the U.S. Department of Labor. He is the author and co-author of numerous books, including “Crunch: Why Do I Feel So Squeezed?” and nine editions of “The State of Working America.”

Posted In: Allied Approaches

Union Matters

Federal Minimum Wage Reaches Disappointing Milestone

By Kathleen Mackey
USW Intern

A disgraceful milestone occurred last Sunday, June 16.

That date officially marked the longest period that the United States has gone without increasing federal the minimum wage.

That means Congress has denied raises for a decade to 1.8 million American workers, that is, those workers who earn $7.25 an hour or less. These 1.8 million Americans have watched in frustration as Congress not only denied them wages increases, but used their tax dollars to raise Congressional pay. They continued to watch in disappointment as the Trump administration failed to keep its promise that the 2017 tax cut law would increase every worker’s pay by $4,000 per year.

More than 12 years ago, in May 2007, Congress passed legislation to raise the minimum wage to $7.25 per hour. It took effect two years later. Congress has failed to act since then, so it has, in effect, now imposed a decade-long wage freeze on the nation’s lowest income workers.

To combat this unjust situation, minimum wage workers could rally and call their lawmakers to demand action, but they’re typically working more than one job just to get by, so few have the energy or patience.

The Economic Policy Institute points out in a recent report on the federal minimum wage that as the cost of living rose over the past 10 years, Congress’ inaction cut the take-home pay of working families.  

At the current dismal rate, full-time workers receiving minimum wage earn $15,080 a year. It was virtually impossible to scrape by on $15,080 a decade ago, let alone support a family. But with the cost of living having risen 18% over that time, the situation now is far worse for the working poor. The current federal minimum wage is not a living wage. And no full-time worker should live in poverty.

While ignoring the needs of low-income workers, members of Congress, who taxpayers pay at least $174,000 a year, are scheduled to receive an automatic $4,500 cost-of-living raise this year. Congress increased its own pay from $169,300 to $174,000 in 2009, in the middle of the Great Recession when low income people across the country were out of work and losing their homes. While Congress has frozen its own pay since then, that’s little consolation to minimum wage workers who take home less than a tenth of Congressional salaries.

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A Friendly Reminder

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