Inside the maddeningly slow wage recovery

The 142,000 new jobs reflected in the August jobs report are the definition of tepid job growth. But the coming months will show whether this was just a blip in recent months’ otherwise solid jobs recovery. Either way, in gauging the health of the labor market, it’s not just job counts that matter. One of the closest-watched labor force indicators in the last few months has been earnings. The Wall Street Journal’s Nick Timiraos has a helpful summary of where things stand as of August’s jobs report:

You can see Friday’s earnings data as glass-half-full or glass-half-empty, and indeed, economics experts seemed to come down on both sides Friday morning. Brookings Institution’s Justin Wolfers sums it up: there are signs of life in wage growth, but they’re small; you have to dig past one decimal place to find them.

“Wage growth continues [its] slow grind higher,” as Wells Fargo chief economist John Silvia writes in an email.

This question of why wages aren’t improving faster is something central bankers are intensely focused on. What we pay workers is an important sign of how much “slack” there is in the labor market. Rising wages are a good sign that all that excessive labor supply is tightening up again.

Fed Chair Janet Yellen addressed the topic at length in an August speech in Jackson Hole, Wyoming. She pointed to the fact that wages have not only been flat but have been growing less than workers’ productivity.

But being the Fed chair, she didn’t have a definitive solution. Yellen noted that it may be that low wage growth is a sign of extra “slack” in the labor market that the now-6.1-percent unemployment rate isn’t capturing, and she added that it may be that employers could up wages without pushing inflation too far upward.

However, she added, other factors could be at work ... for example, employers during the downturn may have wanted to cut wages but couldn’t, so they’re compensating by holding back now, in a phenomenon called “pent-up wage deflation.” So those pay cuts we all didn’t take during the downturn we might be taking now, just in the form of no pay raises.