Even Fed chief admits stagnant wages a ‘puzzle’

Falling unemployment should trigger increases

WASHINGTON — Halfway through a news conference Wednesday, the head of the world’s most powerful central bank was asked a question weighing on the minds — and the checking accounts — of Americans everywhere:

When will people finally start getting meaningful pay raises?

Jerome Powell, the chairman of the Federal Reserve, said, “I wouldn’t say it’s a mystery. But it’s, it’s a bit of a puzzle.”

Puzzle or mystery, the source of the consternation is this: The U.S. unemployment rate has dropped to a multi-decade low of 3.8 percent. A shortage of qualified people to hire has frustrated many employers who have complained that they can’t fill job openings.

Those two factors should combine to unleash a wave of robust pay raises for everyone from construction crews, teachers, accountants and hotel clerks to engineers, janitors, butchers, baristas and summer interns.

It hasn’t happened — not in most industries, anyway.

Powell acknowledged that he couldn’t say for sure why wage growth remains generally tepid. He said he “certainly would have expected pay raises to react more” to falling unemployment.

Echoing what other economists, including his predecessors and colleagues at the Fed, have suggested, Powell offered up one likely factor: the economy’s relatively low productivity growth. American workers aren’t generating enough additional value for each hour on the job.

Some economists say companies have invested too little in capital equipment that would accelerate worker productivity. Others say earlier technological breakthroughs that did speed productivity have yet to be duplicated. But no one is sure.

Powell didn’t explain his distinction between puzzle and mystery. But he has used similar formulations before. In 2017, as a Fed governor, Powell told CNBC that the persistence of inflation remaining below the central bank’s 2 percent target after years of monetary stimulus was “kind of a mystery.”

Yet in recent months, inflation seems to have picked up, driven by higher oil prices.

After factoring in inflation, average hourly earnings have been flat for the past year, the Labor Department said this week. For workers who aren’t supervisors, wages have fallen slightly despite the rush of hiring.