Friday is jobs day in America, and the July employment situation will be released.
- It’s expected to show no big improvement in the pace of wage growth.
- But wages are rising at a faster rate for people with low-paying jobs, which helps explain a big puzzle facing the US economy right now.
The number of jobs added to the US economy in July is not the most important thing that will be revealed in Friday’s jobs report.
Instead, the focus will be on wage growth, or the lack of it, amid assertions that the labour market is so tight that workers should be getting more meaningful raises.
The good news, however, is that wages are rising at a faster pace for lower-wage workers.
The Bureau of Labour Statistics is set to release its numbers at 8:30 a.m. ET. Via Bloomberg, here are the consensus estimates among economists:
- Nonfarm payrolls: +180,000 (222,000 prior)
- Unemployment rate: 4.3% (4.4% prior)
- Average hourly earnings month-on-month: +0.3%
- Average hourly earnings year-on-year: +2.4% (2.5% prior)
- Average weekly hours worked: 34.5
- Change in manufacturing payrolls: +5,000
The unemployment rate fell to its lowest level since 2001 in May. On the surface, that implies that the pool of people willing and available to work is low, and that short supply should put existing workers in a position to earn more pay increases.
But that’s not happening.
To make sense of the discrepancy, Jed Kolko, chief economist at the job-search engine Indeed, says it’s key to look past what the headline unemployment rate is saying about how tight the labour market is.
The slowdown in overall wages hides some good news: Incomes are rising for lower-paying jobs.
“Faster wage gains in lower-wage industries are helping the workers who struggle most in the labour market,” Kolko said in a preview of the report.
Kolko continued: “These wage gains for people with less education are especially welcome, both to reverse some of the increase in inequality that has contributed to political and social polarization, and also because those with lower incomes are more likely to spend wage gains than the rich, which helps boost overall consumption and growth.”
“The distribution of wage growth also sheds some light on the unemployment-wages puzzle: even though low unemployment hasn’t boosted aggregate wage gains, the people whose unemployment has fallen more have indeed seen bigger recent wage gains.”
Average hourly earnings
Other broad measures of wages, including the employment cost index, which measures the cost of labour to employers, show that overall, wage growth is slowing down.
But the headline average hourly earnings print is far from perfect. For example, the calendar sometimes causes an undershoot in the pace of wage growth in months when the 15th — payday for many people — falls after the survey week for the jobs report. The AHE also excludes benefits, irregular bonuses, and some other costs of labour to employers.
And, it’s an average, meaning that movement within particular subgroups isn’t well-reflected in the data.
“It’s possible that the average wage isn’t the best indicator for how much pressure there is in the market, but that it’s an indicator of what types of jobs at the margin we’re creating and what types of jobs were losing,” said Brian Nick, the chief investment strategist at TIAA Investments.
For example, Nick said, retirees with higher paying jobs than graduates could distort average wage growth as they leave the labour force. Entrants to the labour market fresh from school could also cause a skew if their lower-paying jobs are created at a faster rate than others.