America's job-market puzzle
The unemployment rate has plummeted. Why aren't wages spiking?
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"The job market hasn't been this good for a very long time," said Nathaniel Meyersohn at CNN Money. The unemployment rate dropped from 4.1 percent to 3.9 percent in April, the lowest level since December 2000, the Labor Department reported last week. Employers added 164,000 jobs in April, "slightly below what economists were expecting but better than a comparatively sluggish March." Most of the hiring happened in professional and business services, which grew by 54,000 jobs; manufacturing added 24,000. A triumphant Trump tweeted, "3.9% Unemployment. 4% is Broken!" Yet the report also contained a "now-familiar disappointment," said David Dayen at the New Republic: stagnant wages. Average hourly earnings ticked up just 4 cents in April, for a total of about 67 cents, or 2.6 percent, over the past year. It makes sense that bosses don't like increasing pay, but periods of low unemployment, when businesses have to compete for workers, "are supposed to force their hand." The last time the labor market was this tight, wages rose at an annual rate of more than 4 percent. Our current state of affairs is "not how the economy is supposed to work."
The fact that workers haven't gotten bigger raises "this far into one of the longest expansions on record remains a puzzle," said Catherine Rampell at The Washington Post. One possible explanation is that there is more slack in the economy than the unemployment rate suggests. There are "still a lot of working-age people sitting on the sidelines" who aren't counted in the official statistics. Wages won't rocket up until the ranks of those would-be workers are exhausted. Higher-earning baby boomers are also "retiring en masse" and being replaced by mostly younger, cheaper counterparts, which could be skewing the wage figures. I think the recession is "still casting a shadow," said Paul Krugman at The New York Times. Employers are loath to cut wages even when times are desperate, because it's considered "demoralizing and unfair." But they're also reluctant to increase paychecks in good times, because they're afraid of being "stuck with those higher wages if the economy turns bad again." That would explain why companies are increasingly offering one-time bonuses over raises, because it offers them more flexibility than permanent salary hikes.
Wages aside, the U.S. economy appears to be "enjoying a Goldilocks moment, running neither too hot nor too cold," said Harriet Torry at The Wall Street Journal. But if unemployment runs "too low for too long, inflation or dangerous financial bubbles could build." The last three times the jobless rate fell below 4 percent for more than a few months — in the 1950s, 1960s, and 2000 — the U.S. got one of those outcomes, followed by a recession. Federal Reserve officials are now watching for the labor market's sweet spot, the moment when unemployment falls to its lowest level before inflation starts increasing, at which point they'll start boosting interest rates more aggressively. If the Fed lets the unemployment rate fall too far without taking action, it could be hard to manage what happens next. When joblessness "gets very low and then starts rising, it tends to rise a lot."