By just about any metric this is the best job market since the late 1990s. The economy has been adding jobs for 110 straight months — a record streak. Jobs are plentiful. Unemployment is at a half-century low. And the unemployment rates for African Americans, Hispanics, Asians and Americans with less than a high school education are all at the lowest levels since the Labor Department began keeping track.
There’s a lot to cheer.
But one of the few head scratchers in this strong jobs picture is why wages aren’t growing as fast as they did in the late 1990s, when yearly wage growth routinely topped 4 percent.
The latest monthly report card on jobs came out Friday from the Labor Department and shows that the average worker’s pay — known as average hourly earnings — is up 3.1 percent in the past year. It’s a pretty good number. But it’s nowhere near where it was before.
Many hoped this would be the year wages really accelerated. After all, business leaders have been complaining for months they can’t find enough workers — both highly skilled and not — and the natural response to that is usually to bump up pay. But wage growth peaked in February at 3.4 percent and has pulled back since then, puzzling economists.
“From late 2017 through late 2018, it looked like wage growth was picking up. That ended. Wage growth has been backsliding this year,” tweeted economist Heidi Shierholz, senior economist at the left-leaning Economic Policy Institute.
The White House likes to point out that the wage picture looks even better for working-class people. What they mean by that is workers in non-manager roles are experiencing faster wage growth than supervisors, a welcome trend to many. Top Trump Administration officials like to refer to this as a “working-class boom.”
“Skeptics continue to claim that the U.S. economy has run out of steam. Time and time again, they’re proven wrong,” said Tomas Philipson, acting head of President Trump’s Council of Economic Advisers.
Wages for non-supervisors are growing at just shy of 3.7 percent, according to the latest data through November. That’s better than for workers overall, but even that figure lags behind the trend from the late 1990s. It’s about half a point less than much of 1997-98 (as well as 2006-07), and there’s concern that this metric is also starting to pull back.
Economists keep debating what the heck is going on. Some point to the decline of union membership and the lack of bargaining power for workers now vs. in the past. There’s also growing evidence that many towns have one big employer that’s able to control wages in the area and keep them lower. It’s a phenomenon in economics known as “monopsony,” which is when there is only one buyer (similar to a monopoly, which is when there is only one seller).
Others point out that workers today are interested in more than hourly pay. They want better benefits and more flexible work schedules, and some surveys indicate workers are willing to accept lower pay (or more modest pay increases) in exchange for more time off or the ability to work remotely.
Health-care costs are also rising rapidly, suggesting that some pay increases that would have gone to workers’ weekly paychecks are instead going to pay for health insurance. But Nick Bunker, an economist at the Indeed Hiring Lab, points out that total compensation (pay including health care) has been growing slower in the past year than hourly wages, so that doesn’t explain what America is seeing now.
Still others point to the overall cost of living. Inflation has been very low since the Great Recession, staying below 2 percent a year. While rent and health-care costs continue to rise for many, gas, groceries and other goods have risen more much modestly. Some say wages do not need to rise as much if inflation remains low (the latest annual inflation rate was 1.8 percent). But inflation was well below 2 percent in 1998, a year when wages were around 4 percent.
Another popular theory is that despite employers whining they can’t find any workers, there are still plenty of Americans available for employment. The share of Americans in their prime working years (ages 25 to 54) working in the late 1990s was over 81 percent. Today it’s just over 80 percent, suggesting there are at least a million more people who could be lured back to work under the right conditions. Employers might not feel the need to pay up until there truly is no one submitting a job application for an opening.
What’s clear is that the stock market is at record highs and many companies are having another very profitable year, yet the share of the economic “pie” going to workers remains at a 70-year low. And it does not show any signs of rebounding, even in a hot job market.
“One thing that really troubles me is the pace of wage growth. Workers are getting a smaller cut of what we produce than they used to,” tweeted Betsey Stevenson, associate professor of economics at the University of Michigan. “Everyone thought that a strong labor market would help change that, but worker’s share (compared to profits) of GDP remains stubbornly low.”