Lots of measures are telling us that the United States labor market is doing well. In some cases, very well.
Most prominently, the unemployment rate has fallen steadily over the last nine years. It dipped to 3.7 percent in September, and it has averaged 4 percent over the past year, the same as it did at the economic peak just before the 2001 recession.
So in many ways, the labor market looks like the economic heyday of 2000 and 2001, but in one important way it does not: wage growth.
Slack, productivity and labor bargaining power
Economists do not agree on what’s driving lower wage growth, but they have several hypotheses.
One is that there’s more slack in the labor market today than the unemployment rate suggests. Slack is essentially the shortfall between the amount of work the economy could be supporting and the amount it actually is.
The unemployment rate counts only people either employed or actively looking for work — not those who give up looking. A rise in what economists call labor force nonparticipation — whether because of discouragement, school enrollment, disability or retirement — was a distinguishing feature of the Great Recession.
Another idea is that weaker wage growth primarily reflects a slowdown in productivity gains. Janet Yellen, the former Fed chair, espoused this view in a speech last year. If the value of what workers produce is growing more slowly than in the past, we may expect this to be reflected in smaller raises. And while productivity data is noisy, analysis based on the same approach Ms. Yellen used shows that the trend in productivity growth is down more than a percentage point from its 2001 pace.
This slowdown is its own economic mystery, particularly since research shows that the phenomenon is present globally across advanced economies.
A third hypothesis is that weaker wage growth is connected to inequality and lower labor bargaining power.
Moreover, all three of these hypotheses — and other possibilities — need not be mutually exclusive. Slack labor markets, for example, may be feeding into weak productivity growth, and rising employer concentration may be widening the gap between wage gains and productivity growth.
One thing is clear: Although the unemployment rate may look the way it did in boom times in 2000, for many Americans wage growth has much further to go.
Chosen excerpts by Job Market Monitor. Read the whole story at Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t. – The New York Times