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U.S. wages rising – but they're not yet great again

It’s especially puzzling because of the very low unemployment rate, which came in at 3.9 percent in August
economy, compensation
Former U.S. vice-president Joe Biden campaigns for Democratic U.S. congressional candidate Mikie Sherrill at Montclaire State University in Montclair, N.J. on Sept. 5, 2018. REUTERS/Shannon Stapleto

By Gina Chon

WASHINGTON (Reuters Breakingviews) - The latest data on U.S. wages is promising, but it’s not yet great again. Job creation was strong in August and hourly earnings rose 2.9 per cent year-on-year, the fastest pace since 2009. The problem is that barely matches inflation.

Significant wage growth has been the missing piece in a long economic recovery. It’s especially puzzling because of the very low unemployment rate, which came in at 3.9 percent in August. While last month’s overall pay increase is encouraging, inflation is also on the rise. The consumer price index rose 2.9 per cent in the year to July.

Democrats have seized on tepid wage growth as an issue for the midterm elections in November. Next week, former Vice President Joe Biden and U.S. Senator Kirsten Gillibrand will participate in an event focusing on how to raise wages for American workers.

President Donald Trump’s White House is trying to counter the Democrats’ message. On Wednesday, the Council of Economic Advisers released a paper arguing that traditional ways of calculating wages underestimate them because benefits like health insurance, and other factors, aren’t accounted for. Trump’s administration used the report to tout its “pro-growth” agenda, saying the CEA’s method of calculation would add more than $1,000 (all dollars US) to reported average annual household income.

Trump and other Republicans also say the mostly corporate tax cuts passed last year will cause household income to increase by $2,000 over the next two years and $4,000 over four years. But only 27 per cent of households in the lowest-income quintile will receive a tax cut this year, while most will see no material change, according to the Tax Policy Center.

Many Americans also don’t feel that they are becoming better off. Forty-five per cent of respondents said their financial situation hasn’t changed over the last two years while 17 per cent said it has gotten worse, according to a Quinnipiac poll released in August.

The U.S. economy is in good shape, and the tax cuts will provide at least a temporary boost. Wage growth is heading in the right direction. As yet, though, America’s workers still aren’t getting enough of the benefit to see a real financial difference.

CONTEXT NEWS

- The U.S. economy added 201,000 jobs in August while the unemployment rate remained steady at 3.9 per cent, the Bureau of Labor Statistics said on Sept. 7. Economists surveyed by Reuters expected an increase of 191,000 jobs in August. Average hourly wages rose by 10 cents from a month earlier to $27.16 per hour. The year-on-year increase of 2.9 percent was the biggest since June 2009. The labor force participation rate fell slightly to 62.7 percent.

- The professional and business services sector added 53,000 jobs in August while health care gained 33,000 positions. The U.S. government revised figures downward for June and July by 50,000 positions. Job gains have averaged 185,000 per month over the three months through August.

- Separately on Sept. 5, the White House Council of Economic Advisers released a report that said traditional methods for measuring wages are too limiting. For example, official government wage data doesn’t include other benefits, like bonuses, health insurance and retirement contributions. When those factors and others are included, real average hourly after-tax compensation has increased by 1.4 percent from the second quarter of 2017 to the same period in 2018, instead of the near-zero real-wage change seen in traditional measures.

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