Wage growth lags despite falling unemployment rate

Despite some encouraging recent job numbers — unemployment is falling, and an average of 198,000 jobs per month were added to payrolls over the last year — wage growth in the United States is still sluggish, according to experts analyzing Labor Department statistics released Friday.

The September 2015 Employment Cost Index shows labor costs — meaning the total cost to employers of wages, salaries and benefits — rose 2 percent over the past 12 months.

“It’s the trend that’s disappointing, more than anything else,” said Chad Stone, chief economist for the Center on Budget and Policy Priorities think tank. Stone said that wage growth has been consistently anemic throughout the economic recovery.

Unemployment held steady at 5.1 percent in September, compared to 5.9 percent the previous year. That represents a steep drop from the recession-era high of 10 percent in 2009 and 2010. But even that substantial drop in unemployment has not translated to higher pay.

“It’s still the case that employers have the bargaining power,” Stone said.

In theory, business owners need to try harder to attract employees as unemployment falls, which should translate into more generous salaries and wages. But because of the large pool of people who are out of work but not actively seeking jobs — as well as those who are working part-time but would prefer full-time work — those who do have jobs have little leverage to ask for higher pay.

There are about 6 million people in the U.S. who are “involuntary part-time workers,” meaning they would have full-time jobs given the choice, according to the Bureau of Labor Statistics. There are also about 95 million who are not in the labor force, meaning they neither gainfully employed nor seeking employment. The proportion of Americans still participating in the labor force is at its lowest point in nearly four decades.

Those numbers point to “considerable slack in the labor market,” said Elise Gould, economist for the liberal-leaning Economic Policy Institute think tank, “and workers just don’t have the ability to bid up their wages."

Slow compensation growth indicates that employers have most of the power when it comes to setting terms, and therefore have little incentive to raise pay substantially, Gould said.

She noted that the percentage of workers who quit each month has not reached pre-recession levels, an indicator that some workers feel no choice but to remain in their jobs despite unsatisfactory terms. The "quits" rate has held at 1.9 percent since April, compared to 2.3 percent in November 2006, shortly before the beginning of the recession.

"People just don't feel like they can quit their jobs," Gould said, and that lack of exit power means business owners, not employees, are calling the shots on wages.