9 And some falling labor force participation among older workers, even if temporary, was perhaps inevitable – given the rise in their asset values in recent years. The greater dissatisfaction that workers now seem to feel in low-wage jobs is not a bad way to pressure employers to improve wages and working conditions – especially if it lasts. Increases in what economists call workers’ reservation wages – the lowest wages they will accept on new jobs – which extend their job searches and add to job vacancy rates.Increases in quits – especially in low-wage jobs – as workers are more dissatisfied with conditions in their earlier jobs and.Declining labor force participation, primarily among older workers (ages 55+) who had left the workforce (though many are now returning) and women who have provided the care needed for other family members.
Large nominal wage increases currently reflect tight labor markets (plus productivity growth), generated by the following: And wage growth itself must not be a major cause of inflation. Of course, this also assumes that the Fed’s new policy of interest rate growth can succeed without causing a “hard landing,” in the form of a (potentially serious) recession. If supply-shock price inflation diminishes soon – despite the Ukraine War, and even if prices level off at a high level – there might still be sufficient labor market tightness to generate real wage growth. 8 Of course, broad-based growth in educational attainment among workers can also enhance productivity growth over time. 7 In addition, the new infrastructure bill (and Baby Boomer retirements) will likely create more labor demand in construction and manufacturing, which could be filled by well-targeted training programs for these sectors.
#Importance of labour supply professional#
Vacancy rates and wage growth in professional services and health care have also been substantial, and indicate strong demand in these sectors for workers with postsecondary education and training. Education and training could also help ensure that workers benefit from productivity growth, in the form of real wage growth, going forward. On the other hand, if such shocks diminish and if we are at what some economists call a “Solow moment” – when the economic benefits of automation, in terms of higher productivity, are soon likely to become clearer- real wage growth might reappear. Unfortunately, supply-side price shocks have likely diminished labor’s share of output. And measured productivity growth has averaged over 2 percent per year since the pandemic, which – if everyone’s share of output had remained stable, might have generated 4 percent real wage growth. Productivity growth appears to be a major source of real wage growth over time, even though the relationship between the two has weakened somewhat over time (Stansbury and Summers, 2017). Productivity growth has likely helped generate some of the real wage growth we have observed, and might play an even greater role going forward.
1 Unfortunately, inflation has been higher than wage growth since mid-2021 but, if supply-side price shocks soon diminish, real wage growth could return (as long as such growth itself doesn’t generate too much inflation).ĥ. Until recently, nominal wages have more than kept pace with inflation, allowing real wages to grow since the start of the pandemic.įigure 1 indicates that workers enjoyed over 2 percent real wage growth in 2020-21, even after adjusting for the fact that the composition of the workforce changed in that time period. Here are what I think are the most important facts on the currently tight job market and recent wage growth.ġ. If possible, we want to help generate more real wage growth for workers – especially for those in low-wage jobs and industries, whose real wages have been mostly stagnant for decades (Groshen and Holzer, 2021). Still, some facts about our currently tight labor markets, and the wage growth they have or have not generated, can give us insights into how economic policymakers should respond to current circumstances, including high inflation. Whether market tightness will last, and whether workers can expect to enjoy some real (or inflation-adjusted) wage growth anytime soon, is very hard to predict. John LaFarge Professor of Public Policy, Georgetown University Nonresident Senior Fellow - Economic Studies
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