Are wages growing fast enough?
The December employment report from the U.S. Department of Labor is expected to show job-growth of 200,000, and the unemployment rate holding steady at 5.0 percent. Private-sector payrolls rose by 275,000 in December, according to payroll-processor ADP, much more strongly than predicted.
Average hourly earnings are expected to have increased 0.2 percent in December from November, and 2.8 percent on an annual basis. That growth rate would be stronger than the economy has delivered through most of the recovery since the Great Recession ended.
And many economists expect upward pressure on wages to continue into 2016, based on current levels of unemployment and job-growth, including Michael Strain at the American Enterprise Institute.
“One of the ways firms attract workers in a tight labor market is by raising wages,” said Strain.
One reason the unemployment rate has fallen so precipitously since peaking at 10.0 percent in late 2009, is that millions of prime-age adults — people from their early-twenties to their late-fifties — have left the workforce. They’re not actively looking for work, so aren’t counted as “unemployed” in Labor Department surveys.
Reasons people have left the labor force include going back to school, becoming ill or disabled, staying home to care for children or elders, taking early retirement, and becoming discouraged about one’s ability to get a job at all. Economist William Rodgers at Rutgers University’s Heldrich Center for Workforce Development said, in many cases, these people have found ways to survive and make ends meet without getting traditional employment again. And he said wage-growth will have to improve to make it worthwhile for many of these people to return to the job-hunt.
“They could be on disability, they could have unemployment insurance, savings,” said Rodgers. “But what all that does is, it raises their wage at which they’re willing to return to the labor force or willing to begin searching for a job.”
Through most of the economic recovery, wage-growth has hovered around 2 percent annually. The Federal Reserve’s target for nominal wage growth (not adjusted for inflation) is 3.5-4.0 percent. According to analysis from the Economic Policy Institute, if the economy had achieved the Fed’s target for wage growth, the average American worker would earn $2.61/hour more than they do today.
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