US: Headwinds to wage inflation – Deutsche Bank

Research Team at Deutsche Bank, suggests that several measures of wage growth are currently in the 2%-2.5% range and they have identified three headwinds to wage inflation.

Key Quotes

“First, both involuntary part-time employment and the median duration of unemployment are very elevated by historical standards, and are little changed over the last few quarters. The availability of a large pool of unemployed or underemployed workers who possibly have eroded skill-sets and are no longer receiving unemployment benefits is likely to put a cap on wage gains.

Second, flows from unemployment into employment are weak by historical standards, and might have peaked for the cycle. This suggests a lack of dynamism in the labor market that should also weigh on wages.

Finally, participation among young and prime-age workers, who likely account for the bulk of productivity growth, and therefore wage inflation, is in structural decline. We conclude that wage inflation is structurally impaired and the near-term prospects of a sustained break above 3% wage growth are dim.”