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Wage Growth Continues to Outpace Inflation

July 7, 2006 (Jobs Byte)
Jobs Byte

Wage Growth Continues to Outpace Inflation

July 7, 2006
By Heather Boushey

At 4.1 percent, the unemployment rate of high-school graduates is at its lowest rate since July 2001.

The economy added 121,000 new jobs in June. Over 2006, average monthly job creation has been 142,000, lower than in 2004 and 2005, when the economy added an average of 175,000 and 165,000 jobs per month, respectively. The pace of job creation remains far below that of the 1990s expansion, when the economy added an average of 224,000 jobs each month.

Most industries showed small gains in employment last month. However, over the past few months, employment has fallen in construction, retail trade, and temporary help. Employment growth in construction has been flat since February, as only 10,000 jobs have been added since then. This is low compared with this time period last year when construction employment grew by 111,000. The decline in construction employment has been sharpest in residential construction and contracting, and civil engineering. Retail trade lost 7,000 jobs in June. The retail industry has lost 79,600 jobs since January and there are 35,500 fewer retail jobs today than there were a year ago. There have also been job losses in the temporary help industry where 7,900 jobs were lost last month, for a total of 36,100 jobs lost since December.

The average hours worked per week inched back up to 33.9, after dropping from 33.9 in April down to 33.8 in May. Average hours have remained below 34 hours per week since 2002. Even though average weekly hours held steady, the index of aggregate weekly hours worked increased sharply last month, from 104.6 to 105.0. Monthly changes in this series are often erratic, but the index of aggregate hours has increased from 102.4 a year ago, indicating that this month’s change is consistent with the longer upward trend. Sharp increases in this index indicate that productivity may be low this quarter since productivity is calculated as output over aggregate hours worked.

Wages continued their upward trend in June, increasing by $0.08 since May. The average annualized rate of wage growth over the past quarter was 4.5 percent, which is  above the rate of inflation. Over the past four months, wage growth has been above average in financial activities, professional and business services, leisure, natural resources and construction, and below average in all other industries.

There are many signs that workers who want a job are having less trouble finding employment than they were a couple of years ago. The share of workers who have been unemployed for at least six months fell sharply last month, from 18.8 percent in May down to 16.2 percent in June. This sharp drop may be an erratic one-month change that will be reversed next month (like the drop to 16.3 percent in January that reversed back up to 19.0 percent in February), but clearly the share of long-term unemployed is down from 2003 and 2004 when it did not drop below 20 percent.

Compared to last year, the unemployed are no more likely to be out of work involuntarily. The share of the unemployed who involuntarily lost their job is down slightly, but the share who are on temporary layoff increased. The number of people not in the labor force who would prefer to be working is down from last year, more so for men than for women.

Women have been gaining jobs at a faster rate than they had during the prior two years. While men saw relatively strong employment growth in 2004 and 2005, women’s employment has been relatively slow to recover, especially compared to prior economic recoveries. However, over the past few months, women have shown strong employment gains, with 638,000 women finding jobs over the past three months, while only 84,000 men found jobs. Over the past year, women’s employment has risen by 2.1 percent and the share of women with a job rose from 57.9 percent in May up to 58.1 percent in June, the highest rate in five years. Women’s employment rate is still lower than its peak of 58.9 percent in April 2000, but clearly women are getting back to work.

Heather Boushey is a senior economist at the Center for Economic and Policy Research in Washington, DC

CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report. 

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