Wage growth is cooling — but workers still have bargaining power, economists say

The pace of wage growth seems to be decelerating, according to the February jobs report issued Friday — but workers still have bargaining power in a cooling but strong job market, economists said.

“Workers have a very strong negotiating position,” Mark Zandi, chief economist of Moody’s Analytics. “The labor market is still very strong and workers are still in the driver’s seat.”

Workers have enjoyed historically large raises and pay increases since early 2021. Employers had to compete for workers in a hot market characterized by record job openings and turnover.

While growth is still above average, the trendline points at a slowdown, economists said.

Employees saw their average hourly earnings increase by 0.2% from January to February, the U.S. Bureau of Labor Statistics said Friday. That’s down from a monthly rate of 0.3% in January and December, and 0.6% in November.

It’s also the slowest monthly gain since February 2022, according to Jeffrey Roach, chief economist at LPL Financial.

This isn’t necessarily a bad sign for workers, economists said.

The Federal Reserve has been raising interest rates aggressively to try cooling the economy and rein in high inflation. Reducing wage growth is a key aim for the central bank; those labor costs have been a contributing factor to historically high growth in the prices consumers pay for goods and services.  

Inflation has been outstripping pay growth for the average worker. The Fed is trying to reverse that dynamic, so workers enjoy wage gains after accounting for inflation.

Overall job growth in February was stronger than expected and participation in the labor force rebounded to its highest level since March 2020.

“Stronger rates of participation could help companies fill open positions and ease wage growth…