One day, American workers will get a raise. Friday, though, wasn’t that day.
After months of wages maybe, possibly, don’t jinx it, starting to rise, any momentum disappeared Friday. The Employment Cost Index rose at its slowest pace since records began in 1982, just 0.2 percent. In the past year, the index is up only an anemic 2 percent. Just three months ago, it was up 2.6 percent in the previous 12 months.
It’s the same story no matter what wage measures you look at. Average hourly earnings are also up 2 percent the past 12 months after zigging and zagging around that level for basically six years now. There’s just no wage pressure at all, even though unemployment is a relatively healthy 5.3 percent.
Emphasis, though, on the word “relatively.” As economists Danny Blanchflower and Andrew Levin point out, the jobs picture isn’t quite as rosy as the unemployment rate says it is, since there’s still so much “shadow unemployment.” Those are people who either want full-time work but can find only part-time jobs or want to work but have given up looking for now. And it turns out that they put significant downward pressure on wages too. In other words, it isn’t a mystery why wages haven’t started to rise as they normally do when unemployment get this low, because unemployment isn’t really as low as it looks.
The upshot is that interest rates will probably stay at zero a while longer. That’s despite the fact that the Federal Reserve has not so subtly been hinting that it would like to start raising rates sooner rather than later, so it can do so gradually. It was enough that, reading between the lines, markets thought we were two good job reports away from the Fed lifting off in September. And the Fed still might.
But that depended in part on the assumption that wages were rising and shadow unemployment was receding. That was never a sure thing, though the Employment Cost Index was going up. And now it appears that bet is off.
Wage inflation is stuck at the same 2 percent it has been the whole recovery, well below the 3.5 to 4 percent it would be in a normal recovery —– the implication being that this is not one.
There’s still plenty of slack left in the labor market, if the Fed will let it come back. And if it does, U.S. workers might finally get to see some wage inflation.