This morning’s jobs report showed the economy added 201,000 jobs in August, bringing average monthly job creation to 207,000 in 2018. Year-over-year nominal wages grew a more promising 2.9 percent, but still slower than levels consistent with the Fed’s 2 percent inflation target and long-term potential productivity growth.
Turning to the household survey, the unemployment rate held steady at 3.9 percent. However, this masks the fact that the labor force participation rate and the employment-to-population ratio each fell by 0.2 percentage points in August. The prime-age employment-to-population ratio—for the population 25–54 years old (removing any baby boomer retirement effect)— also fell 0.2 percentage points.
At this point, today’s report should look familiar to anyone who has looked at jobs reports over the past several months, or even years. These consistent reports continue to paint a picture of a labor market that is steadily recovering from the worst economic downturn since the Great Depression, but one that remains short of full employment. Wage growth of 2.9 percent is more promising than what we’ve seen in recent months, but we should expect more from the economy for working people. With such low unemployment and consistent job growth in the 10th year of the recovery, commentators have turned to any number of explanations for why wages aren’t rising even more rapidly as the labor market tightens.
Alternative explanations are tempting but today’s report simply reinforces the fact that there is still slack in the labor market and until such time as there aren’t working people sitting on the sidelines wages won’t begin to rise faster and we won’t be able to say that the economy is at full employment. Moreover, given their lack of leverage in recent years, workers seem to need a tighter and tighter labor market to see stronger wage growth.