Even the Wall Street Journal can’t answer the question.
When U.S. unemployment rates fall, conventional notions of supply and demand predict wages will go up as firms bid for increasingly scarce workers, and there are signs of that, for example, in building trades and restaurants. “Basic economics hasn’t gone out the window,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in an interview. “When employment grows, wages will start to grow.”
But a Wall Street Journal analysis of Labor Department data points to persistent constraints on worker pay, even as the economy approaches full employment. The Journal found 33 U.S. metropolitan areasfrom the small to the sizablewhere unemployment rates and nonfarm payrolls last year returned to prerecession levels. In two thirds of those cities including Columbus; Houston; Oklahoma City; Minneapolis-St. Paul, Minn.; and Topeka, Kan. wage growth trailed the prerecession pace.
So much for “basic economics”!
As is clear from the chart above, unemployment (whether measured in terms of the headline rate or the total, U6, rate) continues to fall and yet the rate of increase in nominal hourly wages has also been falling.
They throw lots of possible reasons against the proverbial wall, hoping something sticks. But here’s the one that is most compelling:
Companies tapping pools of workers who have disappeared from the U.S. unemployment tallies, creating what economists describe as hidden slack in the economy. Until this invisible labor supply is spent, these men and women, including part-timers, temporary workers and discouraged labor market dropouts, could hold wages down.
The fact is, the rate of change of hourly wages was less than 2 percent in April, while the total unemployment rate in April still stood at 10.8 percent.
It’s what some of us call, without euphemism, the Reserve Army of the Unemployed and Underemployed.