AUDIE CORNISH, HOST:
Many Americans have been waiting years for a solid pay raise. Tomorrow's monthly jobs report could provide some encouragement. Many economists are expecting it will show another drop in the unemployment rate. Now, that should boost wage growth, but as NPR's John Ydstie reports, that's far from certain in the current economy.
JOHN YDSTIE, BYLINE: The U.S. economic recovery has gone on for eight years now. The unemployment rate is at 4.4 percent. That's very low. And there are near record numbers of job openings. Normally that scenario would have employers boosting wages to attract workers, but wage gains have been very sluggish. That's got economists scratching their heads. Andrew Chamberlain is chief economist at Glassdoor, an online employment information and recruiting service. He says though the unemployment rate is near a 16-year low, his company's data indicates that wage growth is slowing.
ANDREW CHAMBERLAIN: Very sluggish growth, the slowest pace we've recorded in about three years. And it's the sixth straight month that that pay growth has declined.
YDSTIE: The Labor Department's numbers also show yearly wage growth slowing to just 2-and-a-half percent in recent months. Chamberlain says at this stage in an economic recovery, it should be 3-and-a-half percent. There are a number of theories about why that hasn't happened. Chamberlain says one important factor is that a tide of young, inexperienced workers is entering the labor force.
CHAMBERLAIN: Younger workers who are coming into the workforce that are replacing baby boomers who are leaving near their peak earning years.
YDSTIE: Those young workers are paid much less, and they're dragging down the average earnings growth for the nation as a whole. Chamberlain says there's another factor in the disconnect. The low unemployment rate doesn't count a large number of working-age people who are currently on the sidelines. These are people between the ages 25 to 54, the prime working years, who aren't employed and aren't looking for a job. But Chamberlain says many would go to work if the conditions were right.
CHAMBERLAIN: Sometimes these are stay-at-home parents. Sometimes these are people with an injury that has kept them out of the labor force. But for the right price, the right offer, it would pull them back in.
YDSTIE: About 22 percent of this prime age group remain on the sidelines of the U.S. labor force. That number was lower before the Great Recession, and Chamberlain says a good-paying job is the best way to lure them back.
CHAMBERLAIN: People who are out of the labor force are weighing the tradeoff between - you know, is it worth it? When I factor in all taxes and benefits, is it worth it for me to pay for daycare, to go take a full time job or not? Wage growth definitely pulls people back in - no question.
YDSTIE: Economist Dean Baker of the Center for Policy Research says he often sees stories in the newspaper with employers complaining that they can't find enough workers.
DEAN BAKER: Well, you know, I'd look at and go, well, have you tried raising wages?
YDSTIE: Chamberlain says these people on the sidelines have been slowly returning to the workforce as wages have slowly risen. But he says at the current pace, it will take six months or more to get their participation back to levels seen before the Great Recession. Baker says there's a danger that Federal Reserve interest rate hikes could slow this process of bringing people back into the workforce. Fortunately, he says, it looks like the Fed has put off further rate hikes at least for the time being.
BAKER: That will allow the economy more room to grow, the labor market to tighten further. That will presumably mean more wage growth.
YDSTIE: There are other reasons wages aren't rising, says Baker. A decline in unionization and slow productivity growth are among them. Both of those require longer-term solutions. John Ydstie, NPR News, Washington.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.