Americans are working hard, but their paychecks aren’t always reflecting that. Wages in the U.S. are still growing slowly despite the strongest labor market in a few decades.
The wait for American workers to finally see big increases in their pay goes on.
The economy keeps pumping out lots of new jobs. The unemployment rate is extremely low at 4%. Companies scream loudly about shortages of truck drivers, technicians, machinists and other badly needed labor.
Read: U.S. adds 213,000 jobs in June, but wage gains soft and unemployment rises to 4%
Still, wages merely creep higher.
In June, hourly pay for the average worker rose modestly to $26.98. And the increase over the last 12 months was stuck at 2.7%. That’s just slightly higher than the rate of inflation and well below the 3% to 4% gains typical in a period of very low unemployment.
The wellspring of sluggish wage growth runs deep. Weak productivity, more lower-paying jobs, a shift from well-paid baby boomers to younger workers who earn less are among the many causes.
What’s been overlooked is a more basic explanation. There’s still plenty of out-of-work Americans willing to take a job if it’s easy to get one and the pay is OK.
Economists have a way to describe this seemingly hidden group of potential workers: slack.
Well, the slack is being reeled in. Some 600,000 people entered the labor force last month in search of work, bringing the increase to 2 million in the past 12 months, government figures show.
Read: The unemployment rate rose for a good reason — 601,000 workers searching for jobs
The influx of people into the labor force is what’s enabled the economy to add an average of 215,000 new jobs a month over the past year, a lot more than most economists had predicted.
“The past 12 months should quash the notion that job growth is on the verge of running out of steam because firms ‘can’t find any workers to hire, which we’ve always thought a ridiculous notion,” said chief economist Richard Moody of Regions Financial.
Scott Anderson, chief economist at Bank of the West, agreed. He said increasing size of the labor force “adds weight to the argument that there is still invisible slack in the labor market that can be absorbed.”
The availability of labor for hire helps to explain why wages aren’t rising more rapidly.
“With more slack to work off in the labor market, it may take more time for wages to track higher in earnest [and that] should keep labor costs and inflationary pressures contained in the near term,” economists at Bank of America Merrill Lynch wrote.
Also Read: U.S. trade deficit falls 6.6% to 19-month low just before Trump tariffs kick in
How much slack is left? Potentially several million workers or more.
Consider this. There are about 126 million able-bodied people in the U.S. between the ages of 25 and 54. Some 81.8% of them were in the labor force in June.
While the number has been rising, it’s still well below a record 84.5% set in 2000. Were the so-called participation rate to reach its peak again, rough math suggests another 3 million or so prime-aged people could go back to work.