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Wages Growing Faster Than Inflation

May 5, 2006 (Jobs Byte)
Jobs Byte

Wages Growing Faster Than Inflation

May 5, 2006
By Heather Boushey

On average, workers are still working fewer hours than they were in 2000. 

The economy added 138,000 new jobs in April, and the unemployment rate held steady at 4.7 percent. The Bureau of Labor Statistics (BLS) revised the employment levels for February and March downwards by 61,000, lowering the average net monthly job creation for this year to 173,000, about the same rate as in 2004 and 2005. The pace of job creation remains below that of 1990s expansion, when the economy added an average of 224,000 jobs each month.

Most industries gained employment last month. Education and health care continued their upward trends, and manufacturing added 19,000 jobs, an unusually high one-month gain.

Average hours of work increased alongside these employment gains. The average hours worked per week inched up to 33.9, after holding at 33.8 for the past seven months. Average hours have remained below 34 hours per week since 2002. The index of aggregate weekly hours increased sharply last month, from 104.2 to 104.9. One-month changes are often erratic, but this is clearly part of an upward trend, as it follows over half a year of consistent increases in aggregate hours.

However, not all industries showed strong employment growth. Construction added 10,000 new jobs, but the pace of job creation is down. Construction usually creates about twice as many jobs per month. Within construction, residential specialty contractors lost 1,800 jobs in April, after losing 16,300 jobs in March. Retail trade lost 36,000 jobs last month and is down by 24,000 jobs since December. The temporary help sector lost 700 jobs last month and is down by 25,300 jobs for the year.

Wages continued their upward trend in April. The average annualized rate of wage growth over the past quarter was 4.7 percent, which is above the rate of inflation. The goods-producing industries generally had below-average wage gains last month. This includes construction, which had only a one-cent increase in nominal wages. Retail trade, transportation, and professional and business services had strong wage growth last month, more than 50 percent greater than the average increase.

The pace of labor market entry and reentry are both slowing and those not working are less likely to report wanting to work. Among the unemployed, the share who lost their job involuntarily is up from a year ago, while the share who are either new labor market entrants or reentrants are both down, as is the number of discouraged workers.

Older workers continue to add jobs faster than younger workers. Last month, prime-age women (aged 25 to 54) lost 15,000 jobs while older women added 187,000. Women aged 25 to 34 lost 25,000 jobs and women aged 35 to 44 lost 80,000 jobs. Over the past year, for women aged 35 to 44, employment has fallen by nearly a percent.

Employment declines among women do not necessarily indicate an increase in mothers “opting out” of employment. If mothers are voluntarily leaving the labor force, we would assume that they would be more likely to be married. Married women’s employment is up by 226,000 over the past month and 761,000 over the past year, while married men’s employment has only grown by 355,000 over the past year. Unmarried women maintaining households have lost 271,000 jobs over the past year. While this series is erratic, year-over-year employment changes show a clear downward trend for the past few months, while the year-over-year employment changes for married women have been increasing, so the employment declines for prime-age women may not be signs of mothers “opting out” of employment.

The BLS has been tracking the employment outcomes for Hurricane Katrina evacuees since last October. While the survey does not cover all evacuees, it does provide indications that those who have not yet returned to their homes are having a much harder time finding employment. In April, among all evacuees, the labor force participation rate was 62.5 percent, compared to 66.1 among the population overall. Of evacuees not living in their former homes, the unemployment rate was 26.5 percent, compared to 5.3 among those living in their pre-Katrina residences, and 4.7 among the population overall.

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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