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When unemployment is this low (a record 3.7 percent), and job openings outnumber active job seekers, wages tend to rise. But over the past few years, average wage growth has been sluggish.
We are finally beginning to see some better numbers. According to the Oct. 16 data release from the Bureau of Labor Statistics, weekly earnings were up 3.3 percent in the third quarter of 2018 year-over-year — enough to give workers a 0.7 percent real increase. But the quarterly real wage series is quite volatile, and the bigger picture is two years of essentially flat earnings.
1. Variation in labor supply across occupations
In occupations with low skill requirements and relatively pleasant working conditions, many people are able and willing to fill vacancies, and employers can meet their hiring targets without raising wages.
ZipRecruiter data show, for example, that over the past year there were 118 applications per job on average for administrative assistants and 95 for receptionists. Unsurprisingly, then, the latest occupational earnings data from the Bureau of Labor Statistics show that median earnings for administrative assistants and receptionists are increasing by 1.7 percent, below the rate of inflation.
In other occupations that require specialized skills and many years of training, or that are dangerous and difficult, there are far fewer people qualified or willing to do the job. When training pipelines are long or occupational licensing requirements are onerous, raising wages may not be very effective at boosting the number of qualified candidates.
There were just 12 applications per truck driving job and 7 per pilot job on average on the ZipRecruiter platform over the past year, and median earnings in those occupations are increasing much more quickly — at 2.8 percent for truck drivers and 5.9 percent for pilots. There were also shortages of qualified candidates in nursing and physical therapy.
2. Surprisingly slow productivity growth
Productivity and wages grew in tandem between 1940 and 1970, but since then, wages have grown more slowly than productivity, for a number of reasons. In other words, it could take a substantial boost in productivity before we see a modest increase in real compensation.
Many observers think this is merely the calm before the productivity storm. While recent innovations may have been less transformative than some that came before — clean water, electricity, the internal combustion engine, petroleum, powered flight, air conditioning, telecommunications — super computing power, big data and artificial intelligence may be on the brink of sparking a productivity explosion as they diffuse more widely through the economy.
3. Sticky wages
Sometimes workers’ earnings don’t adjust quickly with supply, demand and productivity, as John Maynard Keynes famously noted in “The General Theory of Employment, Interest, and Money”: Wages are sticky on the way down. Workers like nothing less than a wage cut. During the Great Recession — as during the Great Depression 75 years earlier — companies on the brink of bankruptcy were more likely to lay off or furlough 20 percent of their workers than they were to cut salaries by 20 percent.
But wages can be sticky on the way up as well. Companies recall how they struggled to make payroll during the Recession and are therefore reluctant to raise wages now, lest they make it harder for themselves to weather the next downturn.
4. An aversion to unpleasant jobs
Another factor behind low wage growth is the decline in geographic mobility and job-to-job mobility. But this may not be a bad thing. People uproot their families when induced to do so by sufficiently awful conditions, such as discrimination, physical violence and economic hardship. As U.S. households become more prosperous and poverty rates fall, it should come as no surprise that people are increasingly happy to stay put.
What is surprising, however, is the extent to which people avoid unpleasant jobs when the economy strengthens. When the economy is weak, companies have to do more with fewer staff, and workers — who increasingly struggle to find jobs or keep them — are increasingly likely to accept night shifts and otherwise unpleasant or dangerous work. Difficult jobs tend to pay more per hour to compensate workers for the undesirable conditions, but when workers have a choice, a recent study finds, they systematically move to lower-paying firms offering more pleasant work.