Key points:
- Annual posted wage growth has registered 3.1% in each of the past three months and is in line with the pre-pandemic average.
- This stabilization is broad-based, with steady wage growth across wage levels.
- Further stable growth at this level would signal that the labor market has sustainably rebalanced.
Our monthly Labor Market Update uses Indeed and other labor market data to examine important trends. Our US Labor Market Overview chartbook provides a more comprehensive view of the US labor market. Data from our Job Postings Index — which stands 11.7% above its pre-pandemic baseline as of July 5 — and the Indeed Wage Tracker are regularly updated and can be accessed on our data portal.
The US labor market isn’t as hot as it was two years ago. Many indicators — including the unemployment rate, the quits rate, and the ratio of job openings to unemployed workers — paint the picture of a labor market returning to roughly the same comfortable temperature as before the pandemic. While there’s a risk things might be rockier in the future, the good news is that at least one measure indicates smooth sailing.
After two-plus years of sustained slowdown, posted wage growth is leveling off. The latest data from the Indeed Wage Tracker shows that annual posted wage growth was 3.1% in June, the third consecutive month of growth at that level, and equal to the average posted wage growth rate for 2019. In short, with posted wages growing at the same steady and sustainable pace we saw before the pandemic, the Indeed Wage Tracker is signaling the US labor market may be settling into a groove.
The leveling off in wage growth is broad-based. From April to June, wage growth rose only slightly for low-wage sectors (3.2% to 3.3%) and held steady in middle-wage sectors (3.3%). Growth ticked up slightly more in high-wage sectors (2.7% to 2.9%), but even with the modest increase growth, that sector has only returned to its level from February and March.
If we assume the labor market has rebalanced, then any further deterioration risks creating a new imbalance: too little demand for workers. The unemployment rate is at a historically good place, but June marked the third consecutive month of rising unemployment. The Indeed Wage Tracker suggests the labor market is finding a steady stride as posted wage growth settles back into its pre-pandemic pace. For central bankers and anyone else concerned about inflation, moderate and low wage growth is a sign the labor market isn’t pushing up inflation. But keep in mind that wage growth is often a lagging indicator of labor market strength, as employers adjust their wages after noticing changes in the difficulty of hiring or retaining workers. Policymakers should still keenly watch other measures of tightness, including the quits rate and the unemployment rate, when determining the next steps in their ongoing mission of keeping inflation low and employment high.
Methodology
To calculate the average rate of wage growth, we follow an approach similar to the Atlanta Fed US Wage Growth Tracker, but we track jobs, not individuals. We begin by calculating the median posted wage for a given country, month, job title, region, and salary type (hourly, monthly, or annual). Within each country, we then calculate year-on-year wage growth for each job title-region-salary type combination, generating a monthly distribution. Our monthly measure of wage growth for the country is the median of that distribution. Alternative methodologies, such as the regression-based approaches in Marinescu & Wolthoff (2020) and Haefke et al. (2013), produce similar trends.
More information about the data and methodology is available in a research paper by Pawel Adrjan and Reamonn Lydon, What Do Wages in Online Job Postings Tell Us about Wage Growth?
