American joblessness has plummeted to its lowest level since the 1960s, leaving monetary policy makers and economists alike wondering if wages could suddenly jump higher.
That’s unlikely, based on new Federal Reserve Bank of San Francisco research.
State-level data suggest that even when unemployment falls to exceptionally low levels, wages continue to rise only gradually, Sylvain Leduc, Chitra Marti and Daniel Wilson write. That result contrasts with a common finding that -- at least at a state and local level -- pay rates climb more aggressively once joblessness dips below a certain threshold.
Why the difference? It’s partly because the researchers used a statistical method that aims to zoom in on changes in the unemployment rate that are driven by labor demand, rather than by supply. Their analysis suggest that for a given drop in joblessness, wages will rise by about the same amount -- regardless of how low the unemployment rate is to start with.
U.S. wages have been on the uptick. Average hourly earnings rose 3.2 percent last year, matching the fastest pace sine 2009.
“There is no indication of any steepening in the slope as unemployment rates fall below 4 percent,” the researchers write. “Given the historical experiences of states in recent decades, we do not foresee a sharp pickup in wage growth nationally if the labor market continues to tighten as many anticipate.”