Business groups have been complaining about a shortage of workers, but economic data released Friday offered more evidence to the contrary.
Even as the economy keeps adding jobs, wages in June increased only 2.7 percent, according to the U.S. Labor Department. Wage growth hasn’t topped 3 percent since before the Great Recession ended in 2009.
If there were a shortage of workers, basic economic theory says that the value of workers would increase. Weak wage growth suggests that’s not happening.
It’s possible that there is a shortage of workers willing to take jobs at prevailing wages in some areas or industries and that businesses, in general, are stressed out by the prospect of having to pay more for labor. Businesses and liberal economists agree that declining unemployment will increase wages at some point.
But the freakout over a worker shortage is premature, said Elise Gould, an economist with the liberal Economic Policy Institute.
“What’s surprising is not that employers may have to start increasing wages now as the labor market keeps tightening, but rather that they haven’t felt that pressure yet, despite an unemployment rate hovering around 4.0 percent,” Gould said in a blog post on Friday.
Though low unemployment is the ostensible reason for the shortage today, businesses always complain about not being able to find enough workers ― even in 2009, when the national unemployment rate reached 10 percent.
Gould said the fact that wages remain flat suggests that the labor market is not as tight as it seems, despite 4 percent unemployment ― a rate that is already well beneath levels economists once considered too low and therefore dangerously conducive to wage and price inflation. If businesses start having to pay more for labor, then they might have to raise prices for their products.
The employment-to-population ratio for prime-age workers is still below its pre-recession peak, Gould noted. Economists say unemployed people who didn’t actively search for jobs in the past month aren’t “participating” in the labor force and therefore don’t count as unemployed. Including people who looked for work in the past year, rather than just the previous four weeks, would push the jobless rate for June to 4.9 percent rather than 4 percent, the Labor Department said.
“What’s surprising is not that employers may have to start increasing wages now as the labor market keeps tightening, but rather that they haven’t felt that pressure yet.”
- Elise Gould, an economist with the liberal Economic Policy Institute.
Mark Zandi, an economist with Moody’s Economy.com, said businesses are right to fret about having to hike wages. He said wage growth for new entrants to the labor force ― who comprise less than 10 percent of all workers ― has already doubled from a year ago, according to private payroll data.
“This is a sharp acceleration over the past year, and likely presages a broader acceleration in wage growth, as businesses will have no choice but to raise wages more quickly for their existing workers to maintain parity with new entrants,” Zandi said in an email.
The supposed difficulty businesses are having in finding workers has been a prime justification for Republican proposals to cut food stamp benefits. Zandi pointed out that Republican proposals to cut legal immigration would further constrict the labor supply.
Businesses should be able to afford higher wages, according to Dean Baker, an economist with the liberal Center for Economic and Policy Research. By Baker’s calculation, corporate profits have nearly doubled as a share of gross domestic product since 2000.
“For some reason, CEOs apparently can’t seem to figure this one out, since wage growth remains very modest in spite of this alleged shortage of qualified workers,” Baker wrote Thursday in a blog post lamenting a shortage of competent CEOs.