Wage growth is cooling — but workers still have bargaining power, economists say

The tempo of wage progress appears to be decelerating, in response to the February jobs report issued Friday — however employees nonetheless have bargaining energy in a cooling however sturdy job market, economists stated.

“Staff have a really sturdy negotiating place,” Mark Zandi, chief economist of Moody’s Analytics. “The labor market continues to be very sturdy and employees are nonetheless within the driver’s seat.”

Staff have loved traditionally massive raises and pay will increase since early 2021. Employers needed to compete for employees in a sizzling market characterised by record job openings and turnover.

Whereas progress continues to be above common, the trendline factors at a slowdown, economists stated.

Workers noticed their common hourly earnings enhance by 0.2% from January to February, the U.S. Bureau of Labor Statistics stated Friday. That is down from a month-to-month fee of 0.3% in January and December, and 0.6% in November.

It is also the slowest month-to-month acquire since February 2022, in response to Jeffrey Roach, chief economist at LPL Monetary.

The Federal Reserve has been elevating rates of interest aggressively to strive cooling the economic system and rein in high inflation. Decreasing wage progress is a key goal for the central financial institution; these labor prices have been a contributing issue to traditionally excessive progress within the costs shoppers pay for items and providers.  

Inflation has been outstripping pay progress for the typical employee. The Fed is attempting to reverse that dynamic, so employees get pleasure from wage features after accounting for inflation.

General job progress in February was stronger than expected and participation within the labor drive rebounded to its highest stage since March 2020.

“Stronger charges of participation may assist firms fill open positions and ease wage progress pressures going ahead,” stated Julia Pollak, chief economist at ZipRecruiter.

“General, then, the [February jobs] report suggests U.S. employees are having fun with one of the best of each worlds — sturdy job progress paired with easing inflationary pressures,” she stated.

Not all employees essentially have bargaining energy within the present surroundings, although, stated Aaron Terrazas, chief economist at Glassdoor, a job website.

Staff in “entrance line, expert vocational work” are able of power, he stated. These embrace sectors like healthcare and leisure and hospitality, he stated. These sectors noticed “notable job features” in February, in response to the Bureau of Labor Statistics.

However job seekers in different sectors — notably in “expert, information work,” together with expertise and actual property — have “dramatically much less” energy now, Terrazas stated.

Nevertheless, this is not essentially a shock since these are among the many most interest-rate delicate areas of the U.S. economic system, Zandi stated. Slowing the U.S. economic system means some a part of it would endure a pullback, even when the broader financial image stays largely wholesome, he stated.

“We would like a world the place unemployment is low, there are many jobs, inflation is beneath management and your wages are rising sooner than inflation,” Zandi stated. “All in all, that is what seems to be taking place … although possibly not quick as folks wish to see.”