The U.S. economy added 214,000 jobs in October and the unemployment rate fell to a six-year low of 5.8 percent, but average earnings rose just 3 cents an hour, according to data released today by the Bureau of Labor Statistics. The three-pennies-an-hour raise kept the pay increase over the last 12 months to just 2 percent.
The lack of inflationary pressure from wages gives the Federal Reserve breathing room to keep monetary policy loose for a while longer. But it’s bad news for Americans whose living standards remain squeezed long after the end of the 2007-09 recession.
“When Will Americans Ever Get a Raise?” is the headline on an article by my colleague Allison Schrager in the current issue of Bloomberg Businessweek. On one side, she writes, are those who think the unemployment rate needs to fall even more for wages to begin rising. Dartmouth economist Daniel Blanchflower told Schrager that the labor market is in worse shape than the unemployment rate suggests. An accurate gauge of the market, he says, must include people who’ve given up looking for work and those working in part-time or low-paying jobs because they can’t find anything else. Blanchflower says pay won’t increase until the slack is absorbed, and he can’t predict when that might happen.
On the other side are those who say that wages are bound to start rising soon because the labor market is already getting tight. Here is a chart created by Jim O’Sullivan of High Frequency Economics, who stopped by Bloomberg yesterday. It shows a measure of pay that doesn’t often get cited, the personal income data for the private sector in the monthly data from the Bureau of Economic Analysis.
Dividing that by the number of hours worked gives a figure for hourly pay that has risen 3.3 percent over the past year, O’Sullivan says, substantially more than the increase in average hourly earnings. That figure is also well above the rise in the Consumer Price Index, indicating that workers are already getting substantial pay hikes.
I reported this week on research by Joseph LaVorgna of Deutsche Bank Securities, who found that the “insured” unemployment rate, a leading indicator, is pointing toward an unemployment rate of just 4.7 percent by the end of 2015, if current trends continue. A jobless rate that low would almost certainly cause wages to start rising strongly.
Jeff Wesley, chief financial officer of Two Men and a Truck, said this morning that the moving company has had to raise pay substantially to attract talent. The fast-growing company today is more like 8,500 Women and Men and 3,000 Trucks. The base pay for movers and drivers is $12 to $13 an hour, and that’s not counting tips. “It is challenging to find enough people, actually, in this market,” Wesley says.
One solution would be an increase in participation in the labor force. In other words, people who stopped looking for work because they couldn’t find anything need to look around again, because things have changed. That’s not happening much so far. The Bureau of Labor Statistics reported today that “the civilian labor force participation rate was little changed at 62.8 percent in October and has been essentially flat since April.”