Economists continue to ponder slow-growing wages for American workers, even as the unemployment rate falls to to historically low levels. In a note to clients this week, Bank of America economist Michelle Meyer points out that:

  • The unemployment rate is 4.4%;
  • Companies have the most job openings available since 2001;
  • Workers are quitting at the fastest rate since 2007.

"All else equal, this seems like an equation for"normal" pace of wage growth of 3.5-4.0%," she writes. Yet we're only seeing worker pay rise by roughly 2.5% per year.

What gives? One theory is that due to increasing specialization and demand for higher education levels, it's become difficult for workers to switch jobs or careers to those that pay more. Evidence shows that such "job-to-job" transitions are happening at a lower rate today, relative to unemployment levels, than in the past.

Minimum wages, union activity: A primary driver of higher worker pay in recent years has been states and localities raising their minimum wages. Meyer points out that at an industry-specific level, retail and hospital workers have seen their wages rise faster than average, as many of these industries have been forced by local laws to raise pay. In addition, BofA analysts predict high wage increases in the airline industry as the result of new union contracts.

Location matters: Torsten Slok, Chief International Economist with Deutsche Bank Securities argues that the Federal Reserve might just have to be patient and tolerate a much lower unemployment rate than normal before it sees faster wage growth. " The unemployment rate in Maine and New Hampshire is around 3%, well below the national average of 4.4%," he emails. "And in those two states we have recently seen wage growth at 4% - 5%, well above the national average."

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