Worker Pay in U.S. Climbed at a Faster Pace in Third Quarter

Stiglitz: There's No Pressure to Raise Wages

Wages and salaries rose in the third quarter at a faster pace as the U.S. labor market continued to make progress.

The 0.6 percent advance followed a 0.2 percent increase in the previous quarter that was the smallest in data going back to 1982, a Labor Department report showed Friday. The employment cost index, which also includes benefits, also rose 0.6 percent, matching the median forecast in a Bloomberg survey.

Businesses are trying to attract or retain skilled workers as the economy expands and the jobless rate hovers near levels consistent with full employment. A sustained pickup in wage growth, which has remained elusive in this expansion, would help bring inflation closer to the Federal Reserve’s goal as policy makers consider raising interest rates.

“The labor market is extremely tight,” Jacob Oubina, senior U.S. economist at RBC Capital Markets, said before the report. “We’re crossing the threshold of full employment. That’s when you see the wage pressures build up.”

The ECI measures employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits.

In the 12 months through September, wages and salaries were up 2.1 percent, matching the year-over-year gain in the second quarter.

Wages and salaries typically account for about 70 percent of total employment expenses. The ECI data may help shed more light on the outlook for worker pay.

The latest payrolls report showed average hourly earnings rose 2.2 percent in the 12 months through September, matching the prior two months and close to the 2 percent gain on average since the current expansion began in mid-2009.

Because the ECI tracks the same job over time, it removes shifts in the mix of workers across industries, which is a shortcoming of the hourly earnings figures.

Private Wages

Wages excluding government workers grew 2.1 percent from the third quarter of 2014 after climbing 2.2 percent year-over-year in the second quarter. Private wages rose 0.7 percent from the previous three months.

Excluding occupations receiving incentive pay, wages and salaries for all workers rose 2 percent in the 12 months ended in September.

Faster wage growth has proved elusive even amid evidence the labor market is tightening. Employers typically offer bigger gains in pay as they face a smaller pool of available workers of the kind they need.

Recent Data

More recently, hiring has softened amid the global slowdown and financial-market turmoil. Payrolls rose less than projected in September, the prior two months were revised down, and the jobless rate was unchanged as people left the workforce.

Even with a slower pace of recent hiring, “labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year,” Fed policy makers said in an Oct. 28 statement after their two-day meeting.

Their assessment of the labor market said the pace of job gains “slowed and the unemployment rate held steady,” in a downgrade from the prior month’s language citing “solid job gains and declining unemployment.”

The Fed is striving to fulfill its dual mandate of maximum employment and stable prices. The lack of wage growth has, however, depressed inflation as policy makers weigh raising the benchmark interest rate for the first time since 2006.

While the jobless level has fallen to 5.1 percent, close to the Fed’s 4.9 percent estimate of full employment, inflation has remained well below the central bank’s 2 percent goal. Its preferred gauge of prices rose by just 0.3 percent in the 12 months through August.

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