Employment Gains Continue, but Wage Gains Remain Anemic

Employers added 209,000 to their payrolls in July, a bit below the pace of job gains in the previous three months. Nonetheless, the gains were substantially larger than the employment increase needed to keep up with the growth in the working-age population. 

Both private employers and the public sector contributed to payroll growth last month.  While this was hardly a novelty for the private sector, which has seen job gains for 53 straight months, it represents a turnaround for public employers. Government payrolls have now increased for six successive months, the longest streak of monthly job gains since the summer of 2008.  Public sector payrolls continue to grow sluggishly, however.  Since public payrolls began to rise in February, state, local, and federal government agencies have added 90,000 jobs, or about 0.4%, to their January payrolls. Over the same six months private employers added 1.38 million jobs, or 1.2%, to private January payrolls. One factor that has brightened the jobs picture this year is the turnaround in government payrolls. Instead of shrinking, they are now growing, even if slowly.

In spite of continued good news in the BLS employer survey, the unemployment rate edged up to 6.2% in July.  Households reported employment gains in July (+131,000), but the number of adults entering the labor force (+329,000) was even greater. As a result, the number of active job seekers increased almost 200,000. No labor economist can regard the increase in the number of job seekers as bad news. The labor force participation rate remains low by historical standards, and we should expect it to rise gradually as Americans who are currently outside the workforce become more confident that they will be able to find employment.

One factor that will not bring many new job seekers into the market is surging wages. BLS’s latest employer survey confirms that wage gains remain quite subdued. The average hourly wage of workers on private payrolls inched up $0.01 in July compared with June. Over the past 12 months nominal hourly earnings have increased just 2.0%, about the same rate of change as we see in consumer prices. Throughout the recovery nominal wage gains have averaged about 2%, and as a result workers have seen virtually no change in the purchasing power of their earnings.

Some observers fear the steady decline in unemployment is now creating inflationary pressures.  If so it is hard to detect that pressure in the wage statistics. The continued slow pace of nominal wage gains suggests that employers continue to enjoy considerable bargaining power relative to workers. The weakness of employees’ bargaining position is not hard to explain. Not only does the unemployment rate remain over 6%, but there are between 3 and 3.5 million Americans currently outside the workforce who would enter the job market if it were easier to find work. Recent BLS employment reports show it is getting easier to find a job. They also show, however, that the earning power of jobs has not improved for the past five years.