Wage growth should be much stronger by now given low jobless rates

Federal
Reserve Chairman Jerome Powell speaks following the Federal Open
Market Committee meeting in Washington.
Carolyn Kaster/AP

• US wage growth remains weak given the low level of
  unemployment, suggesting the job market still has room for
  improvement. 
• “The definition of full employment is low- and
  moderate-wage workers actually get raises,” said Josh Bivens,
  director of research at the Economic Policy Institute. “We are
  not at full employment yet.”
• Wage growth was both more rapid and more equally shared
  during the three decades after World War II than over the last
  four decades, a new EPI report shows.

Who was it that said doing the same thing and expecting a
different result was the definition of insanity?

That seems to be the curious path of Federal Reserve policymakers
who continue to argue they must keep
pushing interest rates higher in earnest because the
unemployment rate is so low that it risks generating runaway
inflation as workers ask for big pay raises.

There’s just one missing ingredient: actual wage growth of any
substance and duration.

The unemployment rate is at 3.9% and average hourly earnings rose
2.9% last month, the
strongest since the Great Recession. But that pace of income
gains is still paltry compared to past recoveries when a
much more robust 4% rate of growth was common. Wages are
certainly rising all-too-slowly in relation to the low
headline jobless rate, which masks negative factors like
depressed labor force participation and
widespread underemployment. Plus, that was a single month’s
reading that was high compared to the recent record. 

“Full employment means employers should really be begging for
workers rather than workers begging for jobs,” said Josh Bivens,
chief economist at the liberal Economic Policy
Institute, at a conference on higher wages in Washington. 

“There’s a lot of talk these days that we’ve had the unemployment
rate sit around 4% for around a year and people say ‘that’s low
in historic terms, we must be at full employment.”

But that’s totally wrong, Bivens said.

“The definition of full employment is low- and moderate-wage
workers actually get raises. We are not at full employment until
that happens. If that’s not happening, that means we should push
unemployment lower.  That means
we are not at full employment yet.”

Take this
startling statistic: Excluding more highly paid managers and
supervisors, who make up 20% of the workforce, workers actually
saw hourly wages slip 0.1% over
the last year.

Bivens and his colleagues just
released a new report highlighting just how stagnant
incomes have been for the majority of American workers in recent
decades, amid sharply rising inequality and steep gains at the
top of the income ladder.

“Wage growth was both more rapid and more equally shared
during the three decades after World War II than has been the
case over the four most recent decades,” said the EPI report,
entitled Raising America’s Pay.

Economic Policy Institute

Economic Policy Institute