“Most of the changes were relatively modest, but the most notable aspect of the revisions is that claims for the week of March 5th (3 weeks ago) were revised down to 253,000 which is, as far as we can tell, the lowest weekly claims figure since November 24, 1973,” writes Thomas Simons, senior economist at Jefferies. Simons called this “a remarkable statistic and it continues to suggest that not that much slack remains in the labor market.”
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Why the excitement about less slack in the job market? Because some economists think that full employment – meaning that joblessness is due to frictional not cyclical unemployment – will lead to higher wages, something that’s largely been lacking in the recovery from the Great Recession.
“…[W]hen unemployment is low, workers are in a position to demand pay increases in accordance with their productivity,” write Dean Baker and Jared Bernstein at Dissent. “This is especially the case in parts of the private sector where unions are rare. A low rate of unemployment gives workers the bargaining power to demand a pay increase from their boss and to leave for new jobs if they don’t receive it.”
Wages Since the Recession
Since end of the recession in June, 2009, wage growth has been soft. According to The PayScale Index, which tracks the change in wages for employed U.S. workers, the best quarter for wage growth since the recession’s end was Q4 2012’s 2.2 percent growth. The Index forecasts a 1.4 percent increase in pay for Q1 2016.
The picture gets worse when we take inflation into account. The PayScale Real Wage Index, which incorporates the Consumer Price Index, shows that the buying power of workers’ earnings has declined 6.9 percent since 2006.
Other Factors That Might Affect Wage Growth
Will full employment lead to higher wages? It looks like we might soon get an opportunity to find out. If we continue to see jobs reports like these, and wages don’t move, we’ll have to consider other factors.
“The other possibility [for wage stagnation] is that there are deeper, so-called structural reasons for the slow growth in wages, an issue I discussed in a bit more depth at the start of the year,” writes Ben Casselman at FiveThirtyEight. “Economists point to a range of possible explanations: globalization, technological change, declining unions, rising regulation. What they all share is that they won’t be solved through economic growth alone.”
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