In recent months, the labor market has certainly tightened. Unemployment rates continue to steadily decline, and in some areas of the US, the unemployment rate has actually been lower than the number of job openings. This almost balance between the number of job openings and a number of unemployed has led to many workers quitting and looking for better jobs. Not only are they looking for jobs they enjoy more, but they are often looking for higher paying jobs. In a labor tight market, usually wages increase to hold onto employees or attract new ones, but that is not the case in the current market.
Rather than wages growing, benefits are growing. According to federal data, the average American received 27 percent of their total compensation in the form of bonuses, paid leave, and company contributions to items like insurance or 401ks. In the most recent numbers, from the end of the second quarter, that number has risen to nearly 32 percent. Not to mention, other benefits and perks, like an increased ability to work remote or work flexible hours are not accounted for in those numbers.
Many retailers and companies across the United States have offered these additional benefits to their employees rather than raising wages. For example, Best Buy now offers their employees up to four weeks of paid time off in order to take care of sick family members. Their approach is one that many companies are taking this day, seeing their people as a competitive advantage and important asset, rather than just a resource.
In response to the increase in nonwage compensation, the Federal Reserve has adjusted their inflation policy. With no increases in wages or in total compensation, they would have likely opted for a policy that did not include as many interest hikes. However, they announced on Wednesday that they will be hiking their rates for the third time this year, from 2% to 2.25%. In addition, Fed officials expect that at least three hikes will be necessary for 2019 and another one in 2020.
Negatively for many Americans, the continued increase in Fed rates have not allowed them to fully benefit from the economic expansion in the past few years. For instance, according to the Labor Department, hourly wages increased by nearly 3% between August 2017 and August 2018. However, inflation was at a rate of nearly 2.8%, making the adjusted wage increase, after accounting for inflation, equal to about .2%. It is true, as stated earlier, that nonwage benefits have increased slightly, but those numbers do not account for inflation and are still very slow growth compared to historical numbers.
The real debate now is what measure accurately captures the growth in wages and the growth in nonwage earnings and accurately compares them to historical standards. According to Michelle Meyer, an economist at Bank of America, “I think it goes back to the idea of whether our old models are as valuable as they once were. The story changes over time, and I do think the fact that there are other ways of being compensated means that simply looking at average hourly earnings is not going to be a comprehensive measure of how the economy is responding to tightness in the labor market.”