Have We Underestimated U.S. Wage Growth?

There is still significant slack in the labor market. Evidence of slack includes the elevated unemployment rate at 5.9%, the elevated level of U-6 at 11.8% (an alternative measure of labor underutilization), the large number of people working part time for economic reasons (included in U-6), and the low level of wage growth.

What if wage growth is accelerating already, and the BLS wage measures have yet to pick this up? This is the message in new data from ADP, based on payroll processing records for more than 24 million employees, or about one-fifth of all U.S. workers.

Moody’s Analytics helped ADP separate the changes in hourly wages paid to those staying in their jobs, labeled job holders, from wages paid to those who change jobs, new entrants to the workforce, and those leaving it. The data track changes quarterly from the second quarter of 2011 to the third quarter of 2014, long enough allow for seasonal adjustments. The data can also be broken down by industry, region, company size, worker age and gender, tenure on the job, pay scale, and part- vs. full-time.

The hourly wage rate for job holders is the most telling. It is up 4.5% from a year ago in the third quarter, a strong and steady acceleration from its low two years ago. The acceleration in hourly wage growth occurs across the board, although it is up most for younger workers, those with one to five years on the job and at lower pay levels, and those who work at small companies. Wage gains have also picked up most in financial services and construction in the West and South.

If the acceleration in ADP hourly wages presages an imminent acceleration in broader measures of labor compensation, the implications are substantial. Most encouragingly, it signals that workers will finally participate more equitably in the benefits of the economic recovery.




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