Wages Rising: The US Economy Is Now Working Best for Lower-wage Workers

It’s good now and then to put away the punditry, toss the talking points, and look at the data. And though Trump’s economic policies have been attacked for favoring the rich and corporations, they’re hardly the only ones doing better over the past two years. A new Goldman Sachs report points out the following (bold by me):

Wages have accelerated in recent months, and our wage tracker currently stands at a cycle-high pace of 3.4%. … Breaking down the wage acceleration by income level, we find that wage growth has picked up sharply in the bottom half of the wage distribution, with considerably slower growth in the upper half. This pattern is consistent with our prior finding that lower income wage growth is more sensitive to slack, while higher income wage growth is more sensitive to corporate profitability. … Even if job growth slows as the labor market tightens, labor income should continue to grow at a healthy pace if wage momentum persists. The firming of wages should also put some modest upward pressure on inflation, with accelerating wage growth often preceding higher inflation.

While a higher minimum wage may be playing some role at the bottom of the distribution, it is not mentioned in the Goldman report. But diminishing labor slack is referenced. Moreover, these findings synch with those from the Indeed Hiring Lab, which also focus on a tighter labor market:

Starting in mid-2018, the long-awaited pick-up in wage growth seems to have arrived. In January 2019, wages grew by 3.2% year-over-year, up from the general 2.6-2.8% range wage growth had been hovering from mid-2016 to mid-2018. So where is this acceleration in wage growth coming from, and who is benefitting? The pick-up in wage growth seems to be stemming from low-wage industries. (Low-wage industries include department stores, employment services, and food services and drinking places). Over 2018, wage growth in low-wage industries was 4.4%, while in middle- and high-wage industries it didn’t top 3%. Put another way: low-wage workers are likely the ones who are seeing the benefits of accelerating wage growth. A tighter labor market seems to be putting particular pressure on the lower-paid end.