No pay raises for U.S. workers

WASHINGTON - Where are the pay raises?

Employers in the United States are hiring at a brisk pace. Unemployment has sunk to a nearly healthy rate. Jobs are being filled across a range of industries.

Yet the September jobs report released Friday contained a puzzling fact: Paychecks still aren't growing.

Economists regard stagnant wages as a red flag for the five-year-old recovery. Robust job growth has typically fueled rising wages. And without higher pay, workers have less money to spend and save - and that, in turn, keeps the economy from strengthening further.

The average hourly wage for nonmanagement workers has remained $20.67 for two months. It's risen 2.3 percent year-over-year, just slightly above inflation.

It might be the pivotal challenge for families as well as for the economy. The size of a paycheck shapes budgets for consumers, whose spending accounts for most of the U.S. economy's activity.

Weak pay gains, along with lower-than-normal inflation, will also influence when the Federal Reserve decides to start raising interest rates. Without more pay raises spreading across the economy, the Fed has less pressure to raise a key short-term rate from its record low near zero.

So why hasn't vigorous hiring led to better paydays?

Three factors help explain the unusual trend:

Unemployment needs to go lower. Monthly wage gains last meaningfully outpaced inflation from mid-2006 through 2007, just before the Great Recession started.

Economists note that wages are generally a "lagging" indicator. What they mean is that pay typically starts rising well after the job market has shown significant improvement.

Younger workers earn less. As older, higher-paid baby boomers retire, they're being replaced by younger workers who earn less. That demographic shift limits how much average pay can grow.

Recent college graduates are earning $692 a week, according to a paper issued this year by the San Francisco Federal Reserve. That's just shy of $36,000 a year. It's also slightly less than the average wage for all nonmanagement workers - most of whom lack a college degree and the additional earnings power it carries.

The recession hangover continues. After the most destructive economic slump since the 1930s, it can take years to heal.

In a speech in August, Fed Chair Janet Yellen floated an intriguing explanation for lackluster wage growth: Employers seldom cut wages during a recession, even though it might, in theory, make financial sense to do so.

The reason they don't is that wage cuts can break employee morale and possibly disrupt business. Since employers shouldered higher wages than they wanted to during the recession, they might be making up the difference by paying less during the recovery.