Economic Snapshot | Trade and Globalization

Wage growth decelerates while unemployment falls

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Snapshot for December 22, 1999

Wage growth decelerates while unemployment falls

As unemployment increased in the recession of the early 1990s, wages, as would be expected, grew more slowly. Conversely, as the economy pulled out of the recession and unemployment began to decline, wages climbed. But even though unemployment has continued its downward slide, the growth in wages has begun to decelerate.

Why has wage growth slowed as the labor market has become progressively tighter? While no one knows for sure, some potential explanations include worker insecurity; the loss of relatively high-paying manufacturing jobs (and the creation of many low-paying service jobs); increased use of alternative work arrangements (such as temporary workers); and the increased use of alternative pay schemes, such as stock options, which are not included in these wage data (note, however, that these wage data refer to the 80% of the workforce in production and/or non-supervisory jobs; such workers are least likely to receive such alternative forms of compensation). Regardless of the reasons, this pattern of wage growth certainly should quell fears of incipient wage-push inflation.

The chart below plots the monthly unemployment rate against the trend in the nominal wage growth of production, non-supervisory workers.

Data note: The wage series is the underlying trend from the 3-month change in seasonally adjusted data.

Source: Bureau of Labor Statistics (seasonally adjusted).

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