Job market slack keeping a lid on U.S. wage growth: Fed paper

Fri Aug 15, 2014 2:52pm EDT

(Reuters) - Slackness in the labor market is keeping U.S. wages from rising, according to research published by the Chicago Federal Reserve Bank on Friday.

Average real wages would have risen 0.5 percentage point to 1 percentage point higher in June 2014 if labor market conditions were as strong now as they were in the pre-crisis era, the research showed. Average hourly wages are rising at a rate of just 2 percent, barely faster than inflation, government figures show.

With unemployment, now at 6.2 percent, closing in on ranges that the Fed views as healthy, pressure is rising inside and outside the Fed to raise interest rates soon to prevent inflation from getting out of hand.

So far, Fed Chair Janet Yellen has resisted that pressure, drawing in part on her view that low wage growth suggests the labor market is weaker than headline unemployment suggests.

The research published today gives heft to that view.

Slow wage growth is linked closely to the large number of part-time workers who would prefer to have full-time work, wrote Chicago Fed economists Daniel Aaronson and Andrew Jordan in the latest Chicago Fed Letter.

So too is the relatively high fraction of unemployed who have been looking for work for more than a month but less than six months, they said; the larger that group, they said, the more likely wages are to decline.

The dampening effects on wages are particularly strong for lower-wage workers, they said.

(Reporting by Ann Saphir; Editing by)

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