Expectations for July’s employment report, which will be announced on Friday, are for yet another month of tepid growth. In fact, it is likely that job growth in July was even slower than it has been in recent months. This is bad news for the economy, considering that even if the 196,000 average job growth of the last three months kept up, it would still take more than five years to close the 8.3 million jobs gap in the labor market.
Meanwhile, the employment report contains a whole host of indicators above and beyond the job creation and unemployment numbers, which can give clues about where the economy is headed. For instance, in June average hourly wages increased by 10 cents, the largest monthly increase in over 4.5 years. That sizeable increase, however, was likely an anomaly and is unlikely to be repeated. The high unemployment of the last five plus years continues to exert strong downward pressure on wage growth.
Average hourly wages grew 1.7 percent over the last year, not quite keeping up with inflation (which grew 1.8 percent over the last year), which means the purchasing power of workers’ wages is now lower than it was a year ago. The economic link between high unemployment and wage growth is straightforward; employers do not need to increase wages to get and keep the workers they need when job opportunities are so weak that workers do not have other options. In other words, high unemployment weakens workers’ bargaining power, seriously hampering wage growth. This is problematic for the economy as a whole, because higher wages would lead to more consumption and thus a much-needed boost to the economy. It also should be noted that the impact of high unemployment on wage growth is more negative for low- and moderate-wage workers than it is for high-wage workers. On Friday, policymakers and members of the media would be well served by looking at workers’ wages—instead of simply being satisfied if the job creation number beats expectations.