THE CURRENT JOB OUTLOOK
Regional Labor Review (Fall 2018)
Why Is Wage Growth So Weak When Unemployment Is So Low? by Gregory DeFreitas
This fall marks the 10
th
anniversary of the autumn 2008 financial meltdown of the Great Recession.
Compared with those dark days, recent headlines paint a mostly bright job picture: the national unemployment rate is now under 4% -- its lowest level in a half-century – net job growth averages over 200,000 per month, and average hourly wages rose 3.1% in the 12 months through September. In opening the White House “Pledge to America’s Workers” business conference in late October, Presidential Advisor Ivanka Trump claimed: “The reality is that we have an incredible economy, a robust economy. And that’s because of deregulation, because of tax reform. And for the first time in history, we have more vacant jobs than we have unemployed workers to fill them.”1 In fact, the national trends downward in unemployment and upward in job growth long predate the current administration’ s arrival in 2017. The unemployment rate began steadily falling from its Great Recession peak of 10% in late 2009 and was down to 4.6% at the time of the 2016 election. Likewise, monthly job growth turned positive in early 2010 and has increased since then for a record-breaking 96 months as of October. The claim that job vacancies now outnumber jobseekers for the first time in history omits all history prior to 2001, when the Labor Department first began consistently estimating job openings.2 And the widely cited 3.1% wage increase was in nominal wages, unadjusted for price inflation. Once inflation’s erosion of purchasing power is subtracted, the real wage change over that period was a mere 0.5%. The newly released figures for October reveal that real hourly pay fell below September’s level and, for the past 12 months, has increased the average employee’s hourly pay by only seven cents!3 Why, if employers are truly having more difficulty finding the employees to fill job openings, are most working people still suffering pay paralysis? Common sense – and over two centuries of mainstream economics – expects that tighter job markets should pressure employers to raise hiring incentives, especially wages and salaries. Two possible explanations have been highlighted by most economists looking into this important puzzle. First, the labor market may not really be as tight as the unemployment and job vacancy estimates alone suggest. Alternative indicators like the broader underemployment rate and the fraction of the adult