US – good employment situation but hardly any sign of wage pressure

All in all, the employment situation in the United States is very good. The rate of unemployment has halved since the end of 2010 and the average number of unemployed persons in 2016 is likely to have fallen below the eight million mark again for the first time since 2007. In the course of the current year, as in previous years, we are seeing very moderate wage increases only, despite the quite good situation meanwhile on the labour market. Wage momentum appears to be capped by the sustained intake of returnees. Based on our calculations, the influx from the hidden reserves will continue next year too. We anticipate an unemployment rate of 4.8 percent next year and wage increases of around two and a half percent. Nonetheless, the reduction in unemployment and hence the decline in the unemployment rate is likely to progress at a somewhat slower pace than in this year, despite the sustained economic momentum in 2017.

A comparison of the four upward cycles on the US labour market since the start of the 80s shows that wage momentum is the weakest by far in the current cycle. Even so, very low inflation in the last few years means that private households have actually seen wage growth – in other words real wage growth – despite the weak nominal increase. The real wage increase was 2.6 percent in 2015 and therefore as high as last seen in 1998. If the nominal wage increases lag consistently behind inflation, the wage demands will probably rise too.

However the key reason behind the moderate wage increases only at present is the large number of returnees. Taking into account above all the employable persons that are potentially available, we have ascertained that there is still a large number of people in hidden reserve. Our analysis shows that almost 1.3 million people will return to the labour market again. Even if the pace of the influx remains as high as it is this year, the comparatively significant expansion of the supply of labour should continue on into 2018.

Another argument for the absent wage pressure in the immediate future is the persistent above-average share of the workforce in involuntary part-time work. These are people that would like to be in full-time employment but can only find work with reduced working hours. If they are given the opportunity to extend their working hours, they generally do so at an unchanged hourly rate. A „second hidden reserve“ is therefore still available here in principle too.

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