In May of last year, we artfully described the paradox of good economic news and low or moderate wage growth.  At the time, the U.S. economy had just added 211,000 jobs, and the unemployment rate had fallen to its lowest level since 2007.  However, what was missing in all that good news was signs of substantial wage growth. 

As the theory goes, tight labor markets should drive wages up as employers compete for talent.  Factoring in inflation, wages were essentially flat with average hourly earnings rising a modest 2.5%, levels that were seen in the midst of the worst recession in U.S. history.  At the time we noted the likely culprits of this paradox.  Specifically, it was thought that demographic shifts in the economy, persistent slack in the labor market, and weak productivity among other factors were responsible for the sluggish wage growth.

Well, recent news from the Bureau of Labor Statistics may be a sign that wage growth, which has been conspicuously late to the party, has arrived.  Specifically, in January, the government reported that average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $26.74, following an 11-cent gain in December. Over the year, average hourly earnings have risen by 75 cents, or 2.9%. The news, which sent shockwaves in the stock market, should also cause employers to take note. 

As we mentioned last week, determining whether this news is the canary in the coal mine or an anomaly, will require additional data points over the next several months.  Some would like to see wage growth increases above 3%, which we have not seen.  Some others have pointed to increases to the minimum wage in 18 States (including Michigan) as another probable cause of the recent spike in wages.  However, some economists see the news as positive.  They point to the new Republican tax law, claiming it will continue to help wages as some large employers give pay raises as a result of the new law.  In addition, the new corporate tax rate is likely to spur capital expenditures boosting productivity.

ASE members will get a glimpse of actual wage movement with the results of the 2018 compensation surveys that is currently open for participation.  The deadline for the survey has been extended until February 23^rd.  The survey will be released at the upcoming Compensation and Benefits Conference on May 23^rd.  To participate, visit our Participation Center for details.