Mystery Of The Missing Wage Growth

Submitted by Jessica Rabe of DataTrek Research

If the unemployment rate is at a 17-year low, then why does wage growth remain so tepid? After last Friday’s jobs report, that’s a question on many investors’ minds. A trip to Google Trends, which measures the search volume of any given word or phrase, starts to tell the story:

• “Ask for a raise” and “Get a raise”: These search queries are flat over the past 12 months. Let’s face it, we ask Google for help on almost everything, and searching for tips on how to get more pay is no different. But if you don’t ask, you likely won’t receive.


• “Hire” vs. “Get a job”: The former term outnumbers the latter phrase by almost 3 to 1 on average over the past 12 months. As the labor market continues to post a solid number of jobs added each month, perhaps employers are having trouble finding qualified workers that still need a job.


• “Quit my job”: While this phrase peaked in January of this year (likely a function of New Year’s resolutions rather than serious intent), it is still up nearly 50% over the past 12 months.


• All in all: workers aren’t necessarily pushing for a pay bump, but they are growingly confident that they could get a better paying position if they leave their current gig. Meanwhile, employers are more eager to hire than Americans are trying to get a job.

This analysis may seem simple, but it actually closely aligns with the data in the Job Openings and Labor Turnover Survey (JOLTS) out today. We always review JOLTS, a one-month delayed take on the state of employment, as it gives a more complete view of the workforce than the Employment Situation report and is based on a larger population sample. Consider these points:

• The number of job openings jumped by 472,000 to a record high of 6.55 million in March 2018 (latest available data), up 16.8% year-over-year. No doubt this shows the tremendous interest that employers have with respect to hiring new workers.


• The trouble comes when looking at how many people are actually getting hired, which slipped by 1.6% m/m to 5.43 million. It is still up 2.4% y/y, but moving in the wrong direction. It’s not like employers are cutting back on their payrolls either, as the number of layoffs and discharges declined by 6.3% y/y to 1.56 million.


• Consequently, job openings continue to exceed the number of people starting new jobs, which has been an unusual development over the past few years compared to JOLTS’ full history. For example, from December 2000 (when the data was first collected) to July 2014, there were more hires than job openings during every single month. In fact, the difference between hires and job openings averaged about 1 million during that time frame.


• For most months since 2014, the reverse has been true with job openings outnumbering hires by an average of 323k. In March, this gap reached a record of 1.13 million in favor of job openings over hiring.

How this explains slow wage growth: if you can’t fill a certain position, by definition you can’t give this nonexistent employee a raise. This dilemma highlights the ongoing difficulty of employers finding qualified workers. The interest is there, but the skills needed to meet many jobs’ requirements are not, as repeatedly highlighted in the Fed’s Beige Book reports.

With all that said, workers are as confident as ever according to one measure we calculate from the JOLTS data. Our “Take this job and shove it” indicator, or quits to total separations, increased to a record high of 63.2% in March. Additionally, the number of quits gained 6.4% y/y to 3.34 million, marking a post-recession high. This shows a greater belief among workers in their own ability to attain a more lucrative position and that the economy is strong enough to offer better jobs.

Summing up, all this data signals that wage growth should accelerate going forward. Otherwise, the mystery of the missing wage growth will continue.