Still Waiting for Wage Growth

May 12, 2015

On Friday, April’s unemployment rate was announced at 5.4%, the lowest reading since May 2008 and significantly down from its peak reading of 10% in the aftermath of the Great Recession. Despite the low participation rate (62.8%), the dramatic improvement in the unemployment rate should be viewed as a positive development for the United States economy.

Although the unemployment rate has recovered, wage growth continues to stagnate, as shown by our chart this week. In looking at the chart, a negative correlation between unemployment and wage growth is abundantly clear and makes sense intuitively: when unemployment is high, workers do not have pricing power to demand higher wages, but when unemployment is low and demand is high for employees, firms are forced to offer higher wages to entice workers. The most recent recovery in the unemployment rate, however, has not been accompanied by the ascension in wage growth that is to be expected. So while the lower unemployment rate is encouraging, it is difficult to label the labor market as fully recovered until we see more tangible growth in hourly earnings.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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