The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
January 23, 2017
Wage Growth Tracker: Every Which Way (and Up)
As measured by the Atlanta Fed's Wage Growth Tracker, the typical wage increase of a U.S. worker averaged 3.5 percent in 2016. This is up from 3.1 percent in 2015 and almost twice the low of 1.8 percent recorded in 2010. As noted in previous macroblog posts, the Wage Growth Tracker correlates tightly to the unemployment rate. As median wage growth has risen, the unemployment rate declined from an average of 9.6 percent in 2010, to 5.3 percent in 2015, and to 4.8 percent in 2016.
What does this correlation suggest about the Wage Growth Tracker in 2017? Let's start with a forecast of unemployment. Based on the latest Summary of Economic Projections, the central view of Federal Open Market Committee participants is that the unemployment rate will end this year at around 4.5 percent, about 30 basis points below the median participant's estimate of the unemployment rate that is sustainable over the longer run.
With a modest further decline in the unemployment rate, other things equal, we might then also expect to see a modest uptick in the Wage Growth Tracker in 2017. But I think the emphasis here should be on the word modest. Speaking for myself, sustained Wage Growth Tracker readings much above 4 percent in 2017 would begin to worry me, especially without a compensating pickup in the growth of labor productivity, which has been stuck in the 0 to 1 percent range in recent years. Significantly higher wage growth—reflecting a tightening labor market more than larger gains in worker productivity—could make the inflation outlook a bit less sanguine than we currently think. (This macroblog post discussed the connection among productivity growth, wage growth, and inflation.)
Thus far, many firms appear to have been able to keep their labor costs relatively low by replacing or expanding staff with lower-paid workers. (Our colleagues at the San Francisco Fed have written about how changes in the composition of workers can mute changes in total labor costs.) However, it's not clear how long that approach can be sustained. Indeed, it's noteworthy that average wage costs appear to have accelerated recently. For instance, U.S. Bureau of Labor Statistics data indicate that average hourly earnings in the private sector increased over the year by 2.9 percent in December—the fastest pace since 2009.
We haven't been hearing reports from firms where the typical worker's wage increase in 2017 is expected to be above 4 percent. However, we did get readings for the Wage Growth Tracker pretty close to 4 percent in October and November of last year. As the following chart shows, a sharp increase in women's median wage growth (hitting 4.3 percent in October 2016) drove the overall increase. In contrast, the median wage increase for men was 3.5 percent.
The jump in the relative wage growth of women came as a bit of a surprise. Female wage growth had been generally running below that of men since 2010, and analysis by my colleague Ellie Terry showed that gender-specific factors that are unlikely to change very rapidly explain a fair amount of that lag. Therefore, we suspected that the divergence in wage growth might not be sustainable—a suspicion that proved to be true. Median wage growth for women slowed to 3.5 percent in December, the same growth rate men saw.
Readers who can't get enough Wage Growth Tracker data will be delighted to note that in 2017 we plan on making further enhancements to the tool. These enhancements will include finer cuts by age, education, industry, and hours worked, as well as new cuts by occupation, race, and location. You can stay informed on all Wage Growth Tracker updates by subscribing to our RSS feed or email updates .
- Hitting a Cyclical High: The Wage Growth Premium from Changing Jobs
- Thoughts on a Long-Run Monetary Policy Framework, Part 4: Flexible Price-Level Targeting in the Big Picture
- Thoughts on a Long-Run Monetary Policy Framework, Part 3: An Example of Flexible Price-Level Targeting
- Thoughts on a Long-Run Monetary Policy Framework, Part 2: The Principle of Bounded Nominal Uncertainty
- Thoughts on a Long-Run Monetary Policy Framework: Framing the Question
- What Are Businesses Saying about Tax Reform Now?
- A First Look at Employment
- Weighting the Wage Growth Tracker
- GDPNow's Forecast: Why Did It Spike Recently?
- How Low Is the Unemployment Rate, Really?
- April 2018
- March 2018
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- May 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth