The February jobs report to be released tomorrow should answer analysts’ biggest question: are workers finally seeing sustained wage growth, or is low workforce participation slowing things down?

Last month’s report showed 200,000 jobs added and a 4.1 percent unemployment rate. Wage growth has lagged during the recovery, finally ticking up to 2.9 percent after months of minimal growth. Analysts expect wages to hold at 2.9 percent for the month of February.

Some analysts point to labor force participation, which is the lowest it has been since 1970. The unemployment rate only counts people in the labor force — measured as those who are working, or are actively seeking work. Each month, about two-thirds of new jobs are taken by people who were previously outside of the labor force, according to Elise Gould, director of health policy research at the Economic Policy Institute. This indicates that there is a substantial pool of people not being counted in the unemployment rate.

“It’s no surprise that the unemployment rate might be overstating the strength of the economy,” Gould said. “And because of that labor market slack, workers do not have the leverage to bid up their wages.”

People who are involuntarily underemployed are not counted in the unemployment rate as well. This would include workers with college degrees who are working jobs that don’t require college degrees, or workers who are working fewer hours than they would like. While the unemployment rate was even lower in 2000, there was higher wage growth then and no evidence of inflation pressures.

Gould points to the growing gap between overall wage growth and the production non-supervisory series, which roughly measures the wages of the bottom 80 percent of the workforce. This gap indicates that while wages have been growing slowly since the recession in 2009, so has inequality.

“[Wage growth] should exceed 3.5 percent for a substantial amount of time for workers to begin to claw back losses in the labor share of income they’ve felt during and since the Great Recession,” Gould said.

However, part of the lag in wage growth could be explained by retiring baby boomers. As high-earning baby boomers leave the workforce, they are replaced by younger workers who make less money. Similarly, as top-earning boomers retire, much of the increase in the workforce is happening in lower-income jobs. 

Looking at population-controlled wage numbers may give a more accurate picture, said Joe Brusuelas, chief economist at RSM US LLP. “If you look at those numbers, it puts wages at about 4 percent, which is where I think it’s at,” he said.

If the jobs report does show wage growth, this will have significant impact politically and economically. Wage growth will likely help Republicans in the upcoming midterm elections, and will allow Trump to continue taking credit for the recovering economy.

Economically, wage growth will further cement expectations that the Fed will add a fourth interest rate hike to the three originally scheduled. While inflation still has not hit the 2 percent target the Fed set in 2012, analysts say a fourth interest rate hike is still likely.

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