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If today’s job market were a song: An upbeat groove — but a bluesy refrain

(AP Photo/Keith Srakocic, File)
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If the U.S. job market were a song, it would have a strong, upbeat groove but a bluesy refrain.

The upbeat groove comes from the fact that each monthly report shows an increasingly tightening job market characterized by low unemployment — 3.9 percent last month — fewer involuntary part-timers (i.e., more people finding the full-time jobs they seek) and strong monthly job growth.

The bluesy refrain, however, comes from the fact that as tight as the job market is, real hourly pay for most workers is barely keeping pace with inflation. Part of that is due, as you’ll see, to faster price growth due to higher energy costs, which could pull back in coming months. But it’s a function of a lack of much acceleration in nominal wage growth, even with all that tightening just noted.

So, under the assumption that upbeat grooves warrant less scrutiny than bluesy refrains, let’s dive into a Q&A on what’s (not) up with wage growth:

Q: What are the facts of the case?

A: The figure below tells the story for the 82 percent of the workforce that I’m calling mid-wage workers: blue-collar factory workers and non-managers in services. Over the past few years, year-over-year wage growth before inflation for this group is up from around 2 to slightly north of 2.5 percent (up 2.7 last month). But inflation has gone from weirdly low to about the same pace as hourly pay, implying flat real wage gains since early 2017.

I’ve thrown in some other figures from specific industries that employ a lot of mid-wage workers, showing the same story.

Q: So, is the problem slow nominal wage growth or faster inflation?

A: Most recently, higher energy costs have been boosting prices. (Core inflation, which takes out energy and food, and which the Federal Reserve tracks for signals of underlying price pressures, has been much tamer.) As oil supplies have picked up, this price pressure could come down, but the tariffs, especially if they escalate, could push prices in the other direction. My guess is that topline inflation slows in coming months, leading to faster real gains, especially if falling unemployment pushes up nominal wage growth. (I’ve forecast the July inflation value as it’s not out yet.)

Still, mid-level wage growth before inflation, as described above, has been slower in this recovery than in previous ones, especially at such low unemployment.

Q: What factors are constraining wage growth?

A: Economists correctly point to slow productivity growth, or output per hour, which is growing less than half as fast in this expansion as was the case the last time real working-class paychecks grew strongly, in the latter 1990s. But slow productivity growth certainly does not explain flat, mid-level real wages in such a tight job market. For example, business profits remain strong, and firms are spending billions on share buybacks to boost their stock prices. If workers had stronger bargaining power, they could push for more profits to flow into paychecks.

And, of course, over the longer term, productivity has risen much faster than median compensation (see figure), again, a function of long-term, structural factors reducing weaker bargaining power, including outsourcing of jobs, diminished union power, long periods of slack markets, eroding labor standards, and, especially in the Trump era, a politics that is incessantly hostile to workers and friendly to capital.

Q: What if the unemployment rate falls further? Won’t that give workers more clout and improve the mood of the refrain?

A: It likely will. I’m less certain about the future path of inflation, but here’s a potential, positive near-term scenario: lower unemployment pushes up nominal pay, say from 2.7 percent to the low 3s. Should that occur as energy prices come down, we’ll see real gains in coming months.

But there are enough links in that chain that it’s no slam dunk, even in the near term. As just noted, the fact that worker bargaining power has been in long-term decline while concentrated employer power is ascendant remains a critical determinant of the living standards of working families. Also, the Federal Reserve is in the mix, and if it gets spooked by faster wage growth, it could step up the pace at which it is raising interest rates, which would be tantamount to crashing the party just as the working class showed up.

To be clear, the benefits of tight labor markets abound, as strong job growth pulls in labor-market sideliners. This is especially helpful to the least advantaged, the ones who catch pneumonia when the economy sniffles and, conversely, benefit disproportionately when we close in on full employment. And I expect real wage gains to improve in coming months.

But — and I’m sorry if this amplifies the blues over the groove — the structural, power-oriented factors remain solidly stacked against working-class people, and no one in the political majority is doing anything to help them. To the contrary, they’re busy coming up with ways to further disenfranchise them while redistributing economic resources upward.