Aug 20, 2026 · 13 min · 10 segments
In this episode, we discuss why shifting labor market dynamics are keeping U.S. wage growth subdued despite falling unemployment. The discussion and content provided within this podcast is intended…
The headline U.S. unemployment rate has been falling for several months, but a closer look at who is leaving the workforce and who isn't entering or returning to it reveals why average wages are stagnating and why labor markets aren't a source of inflationary pressure.
In last week's edition of Macro Signposts, we discussed some counterintuitive trends in the U.S. labor market.
Since the beginning of the year, we've seen tandem declines in both the unemployment rate and the employment to population ratio, a concurrence without historical precedent.
See Macro Signposts: As Older Workers Retire, Labor Costs Ease.
We argued that this trend is symptomatic of structural changes in the labor market related to demographics, AI, and immigration policy that are all colliding.
The result is a labor market that isn't as tight as the headline unemployment rate alone, four point one percent as of July twenty-twenty six according to the U.S. Bureau of Labor Statistics, BLS, would suggest.
The fact that the unemployment rate is falling while reported wage inflation is also falling confirms this.
A tighter labor market theoretically is supposed to firm wage growth, not soften it.
This week, we dig deeper into the BLS household survey data to better understand what is happening beneath the surface of those moderating headline wage trends.
We find that a compositional shift in who is leaving employment and who isn't returning is pulling measured U.S. wage growth lower even as the jobless rate declines.
This shift, combined with rising labor force exits and a declining job-finding rate, paints a picture of a labor market that is not generating a sustained source of inflationary pressure.
Given that labor costs are a large portion of the input costs for the goods and services produced across the U.S. economy, consumer price inflation, which is now elevated, should converge to labor cost trends over time.
These labor market trends also argue for central bankers not to be overly reliant on the unemployment rate as a measure of the state of the U.S. labor market.
The headline U.S. unemployment rate has been falling for several months, but a closer look at who is leaving the workforce and who isn't entering or returning to it reveals why average wages are stagnating and why labor markets aren't a source of inflationary pressure.
In last week's edition of Macro Signposts, we discussed some counterintuitive trends in the U.S. labor market.
Since the beginning of the year, we've seen tandem declines in both the unemployment rate and the employment to population ratio, a concurrence without historical precedent.
See Macro Signposts: As Older Workers Retire, Labor Costs Ease.
We argued that this trend is symptomatic of structural changes in the labor market related to demographics, AI, and immigration policy that are all colliding.
The result is a labor market that isn't as tight as the headline unemployment rate alone, four point one percent as of July twenty-twenty six according to the U.S. Bureau of Labor Statistics, BLS, would suggest.
The fact that the unemployment rate is falling while reported wage inflation is also falling confirms this.
A tighter labor market theoretically is supposed to firm wage growth, not soften it.
This week, we dig deeper into the BLS household survey data to better understand what is happening beneath the surface of those moderating headline wage trends.
We find that a compositional shift in who is leaving employment and who isn't returning is pulling measured U.S. wage growth lower even as the jobless rate declines.
This shift, combined with rising labor force exits and a declining job-finding rate, paints a picture of a labor market that is not generating a sustained source of inflationary pressure.
Given that labor costs are a large portion of the input costs for the goods and services produced across the U.S. economy, consumer price inflation, which is now elevated, should converge to labor cost trends over time.
These labor market trends also argue for central bankers not to be overly reliant on the unemployment rate as a measure of the state of the U.S. labor market.
The rest of this transcript — segmented and speaker-labeled, so you land on the exact moment something was said
Search every transcript — by keyword, by phrase, or by meaning, across every show Radar indexes
Trends — what is surging across podcasts, measured against its own baseline
Alerts — when a name you follow appears in a newly indexed episode
No account is needed to search Radar.
