Unemployment – Hurts more than just the Unemployed

High unemployment has negative spillovers for most of those still at work.  In a labor market like ours, with low unionization rates, bargaining clout for many in the workforce is very much a function of the unemployment rate.  Excess labor supply over labor demand typically puts downward pressure on both nominal and real wages.

The figure below plots real hourly wages for non-supervisory workers—blue collar workers in manufacturing and non-managers in services (about 80% of the workforce).  It also plots yearly nominal growth rates of that same hourly wage (before accounting for inflation).

As you can see, the latter series just keeps trending down, and that’s what I mean by a weak labor market hurting workers and their paychecks.  Factoring in inflation shows some interesting nuances—even as nominal wages were slowing back in late 2008, declining price levels boosted the buying power of the hourly wage.   But more recently, the combination of price growth and high-unemployment-induced slower nominal wage growth is lowering hourly pay…

via Unemployment Doesn’t Just Hurt the Unemployed | Jared Bernstein | On the Economy.