Americans are becoming more apt to quit their jobs, a government report showed on Tuesday, a sign that a stronger labour market and falling unemployment rate could result in healthier wage growth and inflation. The three-month quit rate for non-government jobs rose to 6.6 percent, the report showed, the highest since the second quarter of 2008 and up from 6.5 percent in the final quarter of 2014. Both wages and inflation tend to follow a rise in the quit rate by a couple of quarters, research from the Chicago Federal Reserve Bank shows.
"Once the quit rate gets back to its pre-recession level, we could expect wage growth to be back to pre-recession levels within 6-12 months," said Jason Faberman, a Chicago Fed researcher who co-authored the study. The three-month quit rate hit a pre-recession peak of 7.6 percent before falling to as low as 4.3 percent in the depths of the Great Recession. Fed officials have kept interest rates near zero for years to try to boost hiring and bring too-low inflation closer to their 2 percent target. But wage growth, at the intersection of the Fed's two mandates of steady inflation and full employment, has remained stubbornly tepid.
Fed Chair Janet Yellen in March said that wage growth would not be a precondition for raising interest rates. But she and others are keen for evidence that inflation is set to climb back toward the 2 percent level, and Yellen has singled out the quit rate as one gauge on her dashboard.
One of the broadest measures of wage growth, the Employment Cost Index, last quarter notched its largest gain since the fourth quarter of 2008. But at 2.6 percent, that was well below the 3 percent to 4 percent pace of wage growth Yellen says is the mark of a healthy labour market. A separate gauge of wage growth, average hourly earnings, rose just 2.2 percent in April from a year earlier. San Francisco Fed data shows the percentage of workers who received no pay raises in the past year has been stuck near 15.5 percent in recent years, well above the pre-crisis average of about 11 percent. Economists have not settled on why wage growth is so slow, despite a drop in the unemployment rate to a seven-year low of 5.4 percent, but theories abound.
Wage gains may be slow in part because the US population is aging, separate research published on Monday by the Chicago Fed suggests. Older people are less likely to change jobs, and as research by Faberman and others show, job-switching is closely tied to pay rises. "We do still want quits to continue to pick up because wage growth will go with it," Faberman said, though demographics may mean quit rates may never return to pre-crisis highs.
Edward Knotek, a researcher at the Cleveland Fed, is skeptical. "If I had to guess I would think that an improving labour market, shrinking slack, should put upward pressure on wages. But when you go to the data and the statistics, that hasn't always been the case," he said in an interview. "We should be cautious thinking that we know more than we do about wage growth."