What the New Job Report Means for Wage Growth

Wages have been slowly growing for a year now.

National Journal

Friday's jobs numbers showed that wages grew healthily in the month of May. But that particular bright spot in a positive jobs report is just part of a broader trend in wages ticking slightly upward over the past year. And there's reason to think the trend could continue.

The Bureau of Labor Statistics showed that average hourly earnings grew by eight cents in the month of May, which is more than April's three cents growth and seven cents in March.

There are other signs that the U.S. is seeing broader wage growth. Last week, BLS released data showing that real average hourly earnings had increased by 2.3 percent between April 2014 and April 2015.

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, told National Journal that a look at annualized growth for the past three months shows that wages had grown 2.9 percent. There's a lot to be optimistic about there, but Bernstein urged caution.

"We'll have to see if that's a new trend or if it's just monthly noise," Bernstein said.

So why is there a wage uptick to begin with? The employment gains of the past few months may help explain it. The economy added 280,000 jobs in May, which was welcome news after somewhat slower job growth in April— the latest jobs report showed had added 221,000 jobs to the economy, down from the initial reports of 223,000—and March's numbers of 85,000.

Michael Strain, a resident scholar and deputy director of economic policy studies at the American Enterprise Institute, said as the unemployment rate declines, the labor market will tighten and businesses will have to raise wages.

"Today's jobs report is evidence things may be heading in that direction," he said, saying that businesses need to hire more and more workers and are concerned that employees could leave, leading to many employers raising wages.

Another possible reason for more wage growth to come: bumps in the minimum wage. Major businesses such as Walmart and McDonald's have committed to raising their minimum wage this year. Meanwhile, the Los Angeles City Council voted to approve a $15-dollar minimum wage by 2020, and the St. Louis mayor recently announced plans to do the same.

But Michael Madowitz, an economist for the Center for American Progress, says it's important not to overread the data.

"I think it's good news, but I also think our expectations are managed down a little," Madowitz said.