Wage Growth Slowed in April

One underappreciated item in the April jobs report was the sharp slowing of wage growth in recent months. This is bad news both for what it tells us about the labor market and also because wages are where workers get their paychecks. Slowing wage growth, especially in the context of rising prices due to tariffs, is very bad news for workers’ pocketbooks.

The annualized rate of wage growth over the last three months dipped to just 2.6 percent in the period from January to April. The average hourly wage grew 4.0 percent in 2024, so the recent rate is a substantial falloff.

There are a couple of important caveats that I need to add here. First, the wage data are highly erratic and subject to large revisions. My reason for using a three-month period is that the information given by monthly changes is close to worthless. A large rise or fall in a given month can be completely reversed by a move in the opposite direction the next month. Or it may just be revised away.

Taking a three-month period doesn’t eliminate this problem, but it reduces the impact of one month’s data being driven largely by measurement error. We could take longer periods, but that provides us with less information about the current labor market. For example, if we focus on year-over-year changes, we are finding out primarily what happened in 2024 at this point.

We do want to look at different periods, but in this case they tell us the same story. If we look at the year-over-year data it shows wage growth falling to less than 3.8 percent, compared to the 4.0 percent increase we saw last year.

The other point is that wage growth is not the same for everyone. The story of much of the last four decades was wages at the top grew far more rapidly than wages at the middle and the bottom. One of the great stories of the pandemic recovery was that wages were actually growing much faster at the bottom than higher up the wage ladder.

Real wages (wages after adjusting for price increases) at the tenth percentile of the wage distribution rose 15.3 percent from 2019 to 2024. At the twentieth percentile they rose 11.4 percent. At the top, they rose just 6.9 percent, and slightly lower down just 4.6 percent. The point here is that we should care about who is seeing slower wage growth, not just that wage growth is slowing.

We will need more time to get good data on the distribution of wage growth, but some of the evidence to date is not great. The average hourly wage for non-supervisory workers in the restaurant industry, the lowest paid sector, increased at an annual rate of just 1.6 percent over the last three months.

Anyhow, the evidence of slowing wage growth in the April jobs report is very bad news. Most people get most of their income from wages; if they are not keeping pace with inflation, they will be feeling pain. We can hope that the April data is an aberration, and the weakness will either be revised away or reversed in the next months’ data, but for now the picture is not good.

This first appeared on Dean Baker’s Beat the Press blog.  

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