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According to the February jobs report released on Friday, the pace of wage growth appears to be slowing – but workers still have bargaining power in a cooling but strong labor market, economists said.
“Workers have a very strong bargaining power,” says Mark Zandi, chief economist at Moody’s Analytics. “The job market is still very strong and workers are still in the driver’s seat.”
Workers have seen historically high pay increases and raises since early 2021. Employers have had to compete for employees in a hot market characterized by record vacancies and turnover.
While growth is still above average, the trendline points to a slowdown, economists said.
Average hourly wages for workers rose 0.2% from January to February, the US Bureau of Labor Statistics said on Friday. That’s down from a monthly rate of 0.3% in January and December and 0.6% in November.
It’s also the slowest monthly gain since February 2022, according to Jeffrey Roach, chief economist at LPL Financial.
Why economists say it’s good that wages are moderating
This isn’t necessarily a bad sign for workers, economists said.
The Federal Reserve has been aggressively raising interest rates to try to cool the economy and curb high inflation. Reducing wage growth is a key objective of the central bank; These labor costs have contributed to historically high increases in the prices consumers pay for goods and services.
Inflation has outpaced wage growth for the average worker. The Fed is trying to reverse this dynamic so that workers enjoy wage increases after accounting for inflation.
Overall job growth in February was stronger than expected and labor force participation rebounded to the highest level since March 2020.
The labor market is still very strong and workers are still in the driver’s seat.
Mark Zandi
Chief Economist at Moody’s Analytics
“Stronger participation rates could help companies fill vacancies and ease pressure on wage growth going forward,” said Julia Pollak, chief economist at ZipRecruiter.
“So all in all [February jobs] The report suggests US workers are enjoying the best of both worlds – robust job growth coupled with easing inflationary pressures,” she said.
However, not all workers necessarily have bargaining power in the current environment, said Aaron Terrazas, chief economist at Glassdoor, a job board.
“Frontline, skilled trades workers” are in a position of strength, he said. That includes sectors like healthcare and leisure and hospitality, he said. According to the Bureau of Labor Statistics, these sectors saw “remarkable job gains” in February.
But job seekers in other sectors — particularly in “skilled knowledge work,” including technology and real estate — now have “dramatically less” power, Terrazas said.
That’s not exactly a surprise, however, as these are among the most interest-rate-sensitive areas of the US economy, Zandi said. The slowdown in the US economy means some of it will take a hit even if the broader economic picture remains broadly healthy, he said.
“We want a world where unemployment is low, jobs are plentiful, inflation is under control, and your wages grow faster than inflation,” Zandi said. “All things considered, that seems to be happening … though maybe not as fast as people want to see.”
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