It might seem hard to believe, but, at least by this measure, the labor market, with 0.95 unemployed people for every job opening, is in better shape now than at any time during either the Reagan or Clinton booms. So although it might have been slow and steady — painfully so at times — the recovery has certainly come a long, long way from the dark days of 2010 when there were more than 6.6 unemployed people for every job opening. (No wonder that people who lost their jobs then were more likely than anyone else to end up unemployed long term.)
But even though workers would now seem to have a once-in-a-generation (or two) amount of leverage over employers, wages are still quiescent. Which is to say that people aren't getting any bigger raises. Those are stuck at the same relatively meager 2.7 percent that they have been for most of the last two years, even though unemployment has fallen from 5 to 3.8 percent during that time. It's the biggest economic mystery there is right now.
After all, this is supposed to be simple. When unemployment is low, companies are supposed to have to fight over workers by offering them bigger raises. Which for a long time really did seem to be the case. Indeed, between 1995 and 2008, the unemployment rate explained about 55 percent of the raises that nonsupervisory and production employees were getting. Since then, though, it's 2 percent. What in the name of worker bargaining power is going on?
Well, sub-4 percent unemployment notwithstanding, maybe they don't have any. That's apparent enough from the way that even sandwich shops and doggie day-care centers have been able to bully their employees into signing noncompete agreements, not because there are any trade secrets involved in putting together the perfect (or not) roast beef sandwich, but as a way to prevent their employees from threatening to move to a competitor for higher pay. What's a little harder to understand, though, is why this sort of thing should still be the case when finding another type of job should be as easy as it's ever been. One answer is that a lot of places have a few big employers that, by virtue of being the only job in town, can force people to accept whatever wages they're offering. It's basically the reverse of monopoly power — they're the only buyers, rather than sellers, of wages — but the effect is the same: They can dictate terms beyond what a simple supply-and-demand curve would tell you they could. So even if workers are free to quit their jobs, which people are now doing at the same rate they were before the recession, they might not be able to find a better-paying option.
Another possibility is that, while the labor market might be doing better than it has at any time since the Great Inflation started in the 1970s, it still hasn't escaped the Great Recession of 2008. The idea, as Paul Krugman explains, is that companies might be loath to raise wages now because they saw both how hard and how necessary that could be during the crisis, especially when they don't think that inflation will be high enough to quietly do that for them in the future. The same sort of thing has happened in Japan, where its decades-long experience with falling prices and zero interest rates has made companies extremely reluctant to increase pay even in the face of 2.5 percent unemployment and government exhortations to do so.
But whatever the case may be, the story has become a familiar one now. The labor market is working great for people who want a job, but not for people who want higher pay.
At some point that should change — just don't ask me when.