What to watch on jobs day: Hoping for stronger nominal wage growth as the economy continues to inch toward full employment
This week, I wrote two blog posts about wages in the first half (FH) of 2017. First, I analyzed up-to-date real (inflation-adjusted) hourly wage series from the Current Population Survey (CPS) across the wage distribution and compared it to FH2016, FH2007, and FH2000. Preliminary findings from 2017 suggest more broadly based wage growth—with significant gains at the 10th percentile—associated with an economy approaching full employment as well as state-level increases in the minimum wage. However, that good news is tempered by the fact that the vast majority of workers are, in reality, only beginning to make up for lost ground, rather than getting ahead, and wage inequality is still far greater today than in 2007 or 2000.
Second, I analyzed wages in FH2017 by education level. I found that wages for workers with less than a high school degree or just a high school degree rose faster over the last year than any other group at 1.9 percent and 1.7 percent, respectively. This phenomenon is likely related to the disproportionate increases among lower wage workers, due to some states raising their minimum wage. Somewhat surprisingly, given their unemployment rate of 2.9 percent over the last year, I also found that college wages actually fell slightly between FH2016 and FH2017. This is evidence against the claim that the U.S. economy is experiencing a work shortage, particularly among credentialed workers. If employers had to work harder to attract or retain workers with a college degree, we would surely see it in the wage data.
Tomorrow, the Bureau of Labor Statistics releases employment numbers for July, including the latest data on nominal wages. While real wage growth is best for measuring living standards, that is, how much workers’ wages affect their ability to provide for themselves and their families, nominal wage growth is used by policymakers—like the Federal Reserve—to assess labor market slack and determine whether there is evidence of wage-driven inflationary pressures. Nominal wage growth has remained around 2.5 percent for much of the last year, persistently below target levels consistent with the Fed’s 2 percent inflation target and trend productivity growth. While the economy has been adding jobs for years now, we would see faster wage growth if the labor market were tighter. Unfortunately, wage growth continues to underperform. For more on wages and other economic indicators, check out EPI’s autopilot economy tracker to see how various labor market measures would perform each month if the economy continued inching towards full employment, as it has in the months and years leading up to 2017.
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