Excited about an upcoming raise? Don’t be

By Matt O’Brien

Wage Inflation

One day, American workers will get a raise. Today, though, wasn’t that day.

After months of wages maybe, possibly, don’t-jinx-it, starting to rise, any momentum disappeared on Friday. The Employment Cost Index rose at its slowest pace since records began in 1982, just 0.2 percent. In the past year, the ECI is only up an anemic 2 percent, down from the 2.6 percent it was three months ago. And it’s the same story no matter what wage measures you look at. Average hourly earnings are also up 2 percent the past 12 months, after zigging and zagging around that level for basically six years now. There’s just no wage pressure at all, even though unemployment is a relatively healthy 5.3 percent.

Emphasis, though, on the word “relatively.” As economists Danny Blanchflower and Andrew Levin point out, the jobs picture isn’t quite as rosy as the unemployment rate says it is, since there’s still so much “shadow unemployment.” Those are people who either want full-time work but can only find part-time jobs, or want to work but have given up looking for now. And it turns out that they put significant downward pressure on wages, too. In other words, it isn’t a mystery why wages haven’t started to rise like they normally do when unemployment get this low, because unemployment isn’t really as low as it looks.

The upshot is that interest rates will probably stay at zero for awhile longer. That’s despite the fact that the Federal Reserve has not-so-subtly been hinting that it’d like to start raising rates sooner rather than later, so it can do so gradually. It was enough that, reading between the lines, markets thought we were two good jobs reports away from the Fed lifting off in September. And it …read more