Still waiting for your elusive but much-deserved raise?
At long last, it seems to be just around the corner. And that bodes well not just for millions of regular Americans, but also for the presumptive Democratic presidential nominee.
The U.S. economy gets a bad rap these days, despite the fact that it’s doing better than almost every other economy that went through a financial crisis in 2007-2008. With very low unemployment and historically low inflation, we’re in the midst of whatever-you-call-the-opposite-of-stagflation. Which in theory should feel pretty good.
Still, U.S. politicians — and especially U.S. politicians on the right — have found it in their interest to paint the economy as woefully stuck, and therefore in need of bold, new leadership. And one reason their attacks are resonating is that another key component of economic progress has been sorely lacking: wage growth.
Seven years into the recovery, wages have remained pitifully stagnant. Today the median American household brings in an annual income of $56,853, according to a recent analysis from Sentier Research. After adjusting for inflation, that’s lower than it was when the recession began in December 2007, and lower even than it was at the turn of the millennium.
But there are reasons to think this last piece of the recovery puzzle may be slotting into place.
First, the latest jobs report, released Friday by the Labor Department, showed nominal year-over-year wage growth of 2.6 percent. It’s not stellar, but it’s still the fastest pace in seven years and is well above inflation. The Federal Reserve Bank of Atlanta’s monthly wage tracker, which adjusts these data for the changing composition of jobs and workers, suggests even stronger growth.
Second, a newly released analysis of tax data from Emmanuel Saez, an economics professor at the University of California at Berkeley, found that last year the bottom 99 percent of earners saw their incomes grow by 3.9 percent. That is the strongest annual growth rate since 1999.
The top 1 percent did even better — their incomes rose about twice as fast — which translates into greater inequality. Even so, the across-the-board income gains are welcome news for most Americans. And as I’ve argued before, rage about inequality and resentment of the ultra-wealthy seem to subside when the non-rich see their own living standards rise, too. So, this is still likely good news for the party currently holding the White House.
These numbers reflect the past, of course. What about the future?
Lots of other indicators suggest that we should expect accelerated wage growth in the months ahead.
The amount of time it takes an employer to fill a vacancy, for example, is now 29.3 working days, according to the DHI-DFH Mean Vacancy Duration Measure. That’s an all-time high. It means that firms are having trouble finding the workers they need to fill open slots, which could lead to bidding wars to recruit or poach the few qualified workers available.
Other surveys offer further evidence that firms are having trouble finding talent, at least at the prices (i.e., wages) currently being offered.
About half of small and medium-size employers surveyed by the National Federation of Independent Business reported finding few or no qualified applicants for their open positions. That, too, is the highest on record. Not surprisingly, this same survey found that the shares of businesses raising compensation or planning to raise compensation have been steadily trending upward.
On the other side of the bargaining table, the share of workers voluntarily leaving their jobs — what economists refer to as the “quits rate” — has more or less returned to pre-recession levels. This too bodes well for wage hikes, since job-hopping is one of the most important ways that workers, especially young workers, obtain raises.
Finally, the pace of health-care cost growth has also slowed in recent years. (That doesn’t mean health care has gotten cheaper; it just hasn’t risen as quickly as it once did.) For years skyrocketing health-care costs gobbled up a larger share of workers’ total compensation, crowding out wage growth. If health-care cost growth stays relatively restrained — or, alternatively, if firms continue to shift a greater portion of the cost of care onto workers — that, too, could feed faster wage growth.
There are, of course, a lot of economic forces — some homegrown, most coming from abroad — that could derail these predictions. But if recent trends continue apace, they could well be a gift to Hillary Clinton and down-ballot Democrats. When your paycheck is swelling, “steady as she goes” starts to sound more appealing.