Illustration: Aïda Amer/Axios
The U.S. economy added 225,000 new jobs last month and more workers came into the labor force. But data showed wages again failed to rise meaningfully, and there's reason to worry that growth may have peaked at this relatively low level.
What's happening: Average hourly earnings grew by 3.1% over the last 12 months, according to the January jobs report, and have stayed within the narrow range of 2.9% to 3.2% for much of the past year and a half.
By the numbers: The BLS employment cost index rose just 0.7% in the fourth quarter, with the increase in wages and benefits slowing to 2.7%, down from 2.9% in 2018. Other measures of pay and benefits also signal that the wage growth is plateauing or going in reverse.
- The pace of wage and benefit increases also slowed last year from 2018's pace.
- Wages and salaries have risen 2.9% in the past 12 months, down from 3.1% in 2018.
- The latest reading of personal consumption expenditures, the Fed's preferred metric for inflation, showed just a 1.6% increase.
Why it matters: "Over the last 40 years, wage growth for typical American workers has been extraordinarily weak," researchers from the Brookings Institution noted in a recent paper.
- Their data shows many Americans have not seen a significant raise in that time, with hourly wages at the middle of the income distribution having grown only 12% between 1979 and 2018 when adjusted for inflation.
- Economic growth has slowed since 2018 and is expected to continue to do so, with the Congressional Budget Office predicting an average of 1.7% annual growth over the next 10 years.
- When GDP growth slows, wages generally slow as well.
What's next: Policymakers have begun to refocus their attention on wage growth, but few concrete proposals have surfaced for how to achieve that goal.
- Many Democrats, including presidential hopeful Bernie Sanders, have proposed raising the national minimum wage to $15 an hour, but research from Ernie Tedeschi, an economist and head of fiscal analysis at Evercore ISI, found that minimum wage increases only added "0.4 percentage points of upward pressure" to wage growth.
- That's because a relatively small percentage of U.S. workers earn the minimum wage.