March 25, 2019

Unemployment Looks Like 2000 Again. But Wage Growth Doesn’t.

A third hypothesis is that weaker wage growth is connected to inequality and lower labor bargaining power.

Inequality has been rising over the long term, and union membership has been on a persistent decline, but neither solely explains slower wage growth since 2001. Wage growth is down since 2001 across all five wage quintile groups and across union membership.

However, rising inequality and falling unionization may be affecting wage growth in more indirect ways, such as in lower upward mobility and weaker bargaining power. Also, some of the same economic forces feeding into them may also be influencing wage growth.

For example, new research finds that employer concentration — when a few firms dominate the market — is an increasing concern in some segments of the labor market, and that it’s associated with weaker wage growth.

Moreover, all three of these hypotheses — and other possibilities — need not be mutually exclusive. Slack labor markets, for example, may be feeding into weak productivity growth, and rising employer concentration may be widening the gap between wage gains and productivity growth.

One thing is clear: Although the unemployment rate may look the way it did in boom times in 2000, for many Americans wage growth has much further to go.

Ernie Tedeschi is an economist and head of fiscal analysis at Evercore ISI. He worked previously at the U.S. Treasury Department. The analysis here is solely his own.

Note on methods: Median wage growth is calculated from the Current Population Survey (C.P.S.) using a methodology originally developed by Mary Daly, Bart Hobijn and Theodore Wiles, similar to the one used for the Atlanta Fed Wage Growth Tracker. The C.P.S. tracks wages and salaries, but not benefits. All of its earnings and hours worked data are self-reported by the household, and so are subject to survey error.

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