I recently wrote about how important low unemployment is to middle and lower-income working families, as it gives them the bargaining power they lack when there’s slack.
Looking at recent wage trends in this context, I was reminded of some analysis Dean Baker and I did back in the day on how low unemployment affects working people at different points in the wage scale. Using a simple statistical model, we looked at the impact of a one-percentage point decline on the real hourly wage at different percentiles in the wage scale.
The figure below shows the results for low, middle, and high wage earners by gender.
Starting with the results for men, for the lowest wage earners—those at the tenth percentile—a point lower unemployment translates into about a one-and-a-half percent increase in their real wage; for middle –wage men (50th percentile, or median), the boost is just below one-percent. For high wage men, it’s nothing. (The “insig” above that bar means the impact is statistically indistinguishable from no impact at all.)
Women, interestingly, yield a significant boost from low unemployment all across the wage scale, though the impact is lower for middle- and high-wage women.
This result regarding high wage workers is interesting in its own light. High-wage men don’t need low unemployment to boost their earning power; high wage women still do.
But the big takeaway here is that it’s very tough for middle and lower wage workers to get ahead unless the unemployment rate is low. When job markets are tight, even low-wage employers have to bid up their wage offers to get and keep the workers they need.
I’ll assume you’re now convinced that low unemployment is better than high unemployment. Now we can argue about how best to get there.