If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained.
A slowing rate of job growth in July nonetheless managed to pull some workers off the sidelines, but wage growth mired at 2.7 percent began to elicit concerns that wages will fail to keep up with inflation as the economy picks up steam.
At 157,000, the number of jobs created last month fell short of expectations, but upward revisions of the previous two months and a broad base of new jobs across industries left economists relatively sanguine about the miss.
The labor market sectors with the most notable growth in July were professional and business services, which added 51,000 jobs; and manufacturing and healthcare/social assistance, which added 37,000 and 34,000 jobs, respectively.
If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained in the recovery so far.
“I don’t think we’ve seen the brunt of the tariffs yet,” said Arne Kalleberg, professor of sociology at the University of North Carolina at Chapel Hill. Manufacturing and agriculture-related jobs would be especially at risk if China or the European Union enact retaliatory sanctions, he said.
Derailing the current labor market expansion could hurt the most at-risk members of the workforce the most and slow mediocre wage growth even further, even as rising inflation erodes the value of Americans’ pay.
“We have to think about the fact that inflation’s running at a 2 percent rate,” Hamrick said. “We’re on this rising interest rate trajectory.” If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained in the recovery so far.
A yawning skills gap is another. Economists say a robust economy is drawing people back into the workforce, but this could be one of the factors holding down wage growth. “What businesses are having to do is they can’t find people with skills, so they have to hire them at unskilled wages and then train them,” said Dan North, chief economist at Euler Hermes North America.
The data bears this out: Compared to the topline unemployment rate of 3.9 percent, the broader U-6 measure of unemployment fell three-tenths of a percentage point to 7.5 percent in July, a percentage point lower than it was a year ago.
“Of course, the people hired without skills have lower productivity,” North added. The upshot is that unskilled workers aren’t being paid as much, which economists theorize could be holding down wage gains.
by Martha C. White /