I had already planned on taking an updated look at wage growth today, but there was a little flutter on Twitter about job openings and last week’s Q1 wage and benefits data, so that sealed the deal.

To wit: as I used to write many times during the last expansion, wage growth is a long-lagging indicator. It tends to increase only after unemployment (or even better, underemployment) falls to a level where labor begins to have some bargaining power. For the underemployment rate, this was about 9%. It took over half a decade after the Great Recession for the U6 rate to hit that marker:

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So the below graph subtracts the U6 rate from 9% (red), so that any rate lower than 9% shows as a positive, compared with the YoY% change in  average nonsupervisory wages (light blue) and wages measured by the quarterly employment cost index (dark blue):

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Because the underemployment rate went to over 20% in the first few months of the pandemic, the below continuation graph eliminates those months and picks up in the last quarter of 2020:

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As the labor market got tighter, wage growth continued to accelerate.

Economist Jason Furman made a similar point several days ago comparing the job openings rate with wage growth. Here’s his graph:

A graph of the quarterly % changes in wage growth in nonsupervisory wages and the employment cost index does not particularly correlate with the quarterly % change in job openings:

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But the YoY% change in wages does correlate with the absolute level of job openings:

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As the level of employment continues to reach post-pandemic equilibrium, the level of job openings will continue to decline, and the underemployment rate will likely increase. This will cause wage growth to decelerate as well.

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