Unemployment Has Bottomed Out. So Where's the Wage Growth?


Originally posted on National Review’sThe Corner.

The unemployment rate is very low, measured at 4 percent for the month of June. It has been nearly two decades since the U.S. economy was characterized by so little unemployment.

Basic economics says that falling unemployment should lead to faster wage growth. With fewer and fewer workers unable to find a job, the pressure mounts on businesses to increase pay in order to attract relatively scarce workers.

The expectation of faster wage growth is bolstered by other labor-market indicators. For example, there are currently 6.7 million job openings, the greatest number on record. And workers are quitting their jobs—which may be a sign they are confident they will get a better job—at a high rate.

And wages are growing. But not as fast as many expect.

So why the slow wage growth? In my latestBloombergcolumn, I discuss some candidate explanations:

There is “hidden slack” in the labor market because many people were driven out of the workforce by the severity of the Great Recession. The composition of the workforce is changing in ways that affect measured, economy-wide pay. Businesses are using levers other than wages to attract workers. Many of us are in for pay cuts that we should have received during the Great Recession but didn’t due to employers’ reluctance to reduce nominal pay. And maybe you’re reluctant to go to the boss and ask for a raise?

Check out the column here. Your comments, as always, are very welcome.