In the last year, the most important question for U.S. economists and economic journalists has changed from Where are the jobs? to Where are the wages?
It's a problem best summed up by Matthew O'Brien in the Washington Post. As the labor market approaches full employment, there should be more pressure on wages to rise. In the graph below, that would look like a trend-line pointing up and to the left. Instead, as you can see in a half-a-second glance, the trend-line is a blob and it's certainly not pointing up. The unemployment rate has fallen below 6 percent, and earnings growth is flat.
Hourly Earnings vs. Unemployment Rate by Month
Here are three theories for why.
1. Wage growth and job growth are happening in different places.
When economists and writers say "wages aren't growing," we're making a blanket statement that hides the fact that some wages are growing somewhere. Mining and energy jobs have had a fantastic few years, while retail and food service wage growth has been awful. The problem is that there are far more retail and food service workers than mining and manufacturing employees.
We're adding lots of jobs in industries with stagnant wages, and a few jobs in industries with rising wages, according to new research out of the Cleveland Fed. "It may seem counterintuitive that wages and salaries are growing the slowest in industries where jobs are growing the fastest, but it actually is not," writes LaVaughn M. Henry, vice president of the bank's Cincinnati branch. We're adding few jobs in goods-producing industries like manufacturing, which have the highest overall post-recession wage growth, and lots of jobs in service-producing industries (e.g. health care, leisure and hospitality, and education), which have the lowest real wage growth.