This good sign for the US economy could be bad for your paycheck
The U.S. economy is strengthening, unemployment is low – but yet many Americans have experienced sluggish wage growth throughout the recovery.
Wages grew 3.1 percent year over year in June, according to the Labor Department, which was below expectations. Average hourly earnings rose 0.2 percent from the month prior.
Each month, about 125,000 workers have been coming off the sidelines and back into the labor market, according to data from Deutsche Bank Research. That figure has been steadily on the rise throughout the expansion, which is now the longest on record.
It is a trend that has persisted despite fears over the long-term unemployed losing their skill sets, the opioid crisis – which has been partly credited for a decline in prime-age males in the workforce – and many being on disability insurance.
Deutsche Bank Securities Chief Economist Torsten Slok noted that the booming economy, complete with a low unemployment rate, draws workers back from outside the labor market.
One potential side effect this can have? Dampening wage growth.
The lack of wage growth has mystified economists. Typically, when the unemployment rate is low, companies boost pay in order to draw talent. The unemployment rate, sitting at 3.7 percent – a multi-decade low – suggests wages should be rising at a faster pace. The unemployment rate does not factor in people who do not have a job and have not looked for work within the previous four months.
Even Federal Reserve Chair Jerome Powell admitted to being puzzled by the phenomenon. Some economists had attributed lagging wage growth to a lack of productivity, while others credited the rise in automation.
However, if more Americans are flooding into the workforce each month, that could mean companies do not have to respond by raising wages.
During recent congressional testimony, Powell said 3 percent wage growth “barely covers productivity increases and inflation,” noting that wages have not risen as quickly as they have in the past.
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New data released by the Bureau of Economic Analysis this week, however, suggests the wage picture may be brighter than what data has so far predicted.
Annual revisions show that worker compensation rose 4.5 percent in 2017 and 5 percent in 2018. The BEA analysis also found that wages and salaries grew at an inflation-adjusted rate of 4.1 percent in June.
New data about the U.S. economy will be released by the Labor Department on Friday.