What to watch on Jobs Day: Can wage growth return to normal without a huge rise in unemployment?

On Friday, the Bureau of Labor Statistics (BLS) will release its monthly report on the state of the labor market. In addition to salary employment growth and changes in workforce participation, perhaps the most anticipated action is the pace of nominal wage growth.

Even with the recent contraction in GDP, the labor market has been expanding at a steady rate and wage growth is still below inflation. Despite this, many remain concerned that abnormally high (relative to pre-pandemic) nominal wage growth will prevent inflation from returning to more normal levels next year. In this Jobs Day preview post, we take a closer look at wage growth using several different metrics to gauge how concerned we are that wage growth won’t return to normal next year without drastic policy actions causing collateral damage (such as higher unemployment) in the labor market. We find that most of these measures show a slowdown in wage growth in very recent quarters.

in Figure A, we report quarterly changes in wages (expressed as an annual rate) using five metrics: average hourly wages for all workers from Current Employment Statistics (CES); Average hourly wages for production and non-supervisory workers from CES; private sector wages and salaries from the labor cost index (ECI); Wages and special salaries, excluding incentives paid, from ECI; And private wages and salaries from national income and product accounts divided by the scale of total hours we build. We have over a quarter average for CES metrics, which are generally reported monthly. The data note at the end of this post provides more details about this series.

All series, except for the ECI series, show marked spikes in wage growth in 2020. This is the result of the well-known “formation effect” driven by job losses that have been heavily skewed towards lower wage workers. The ECI series is a “fixed weight” series that is not affected by compositional changes. In recent quarters, the effect of compositional changes in increasing and then slowing wage growth appears to be far behind us. More importantly, four of the five series show wage growth that has not only stalled, but has recently begun to slow, even as the unemployment rate remains very low. Clearly, this is not skewed evidence that wage growth will fully return to normal with pre-pandemic trends, but it is comforting to see a slowdown even as inflation remains high and unemployment remains very low.

Quarterly wage growth shows no sign of accelerating in the first half of 2022: Annual quarterly wage changes, alternative measures, 2018-2022

Quarterly changes AHE, total private AHE, prod/nonsuper ECI (special wages and salaries) ECI (special, excluding incentives paid) NIPA wages and salaries/total hours for the private sector
2018 second quarter 2.8% 2.8% 2.8% 2.8% 1.8%
2018 third quarter 3.7% 3.3% 3.7% 2.7% 4.7%
2018 fourth quarter 3.6% 3.9% 2.7% 2.1% 1.3%
2019 first quarter 3.7% 4.0% 2.7% 3.6% 9.6%
2019 second quarter 2.3% 2.9% 3.0% 3.3% 2.1%
2019 third quarter 3.6% 3.9% 3.6% 2.7% -0.2%
2019 fourth quarter 3.1% 3.2% 2.6% 2.3% 5.3%
2020 first quarter 4.0% 4.2% 4.1% 4.4% 5.9%
2020 second quarter 16.3% 16.2% 1.4% 1.4% 24.8%
2020Q3 -3.0% -3.1% 2.3% 2.6% -3.8%
2020 fourth quarter 3.2% 3.4% 3.4% 2.6% 10.6%
2021Q1 4.2% 4.6% 4.8% 4.3% 0.0%
2021Q2 4.7% 6.4% 3.6% 3.9% 9.0%
2021Q3 5.7% 7.2% 6.5% 5.0% 8.2%
2021Q4 6.1% 7.3% 4.7% 5.3% 10.0%
2022Q1 5.2% 6.0% 5.2% 6.6% 7.7%
2022Q2 4.3% 5.4% 6.5% 5.4% 5.9%
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