US: Low unemployment rate with slow wage growth

The US economy has been creating jobs at a moderate pace over the last few years while real wage growth remains largely flat during this expansion. The unemployment rate has fallen to as low as 4% in June 2018, while the average hourly wage growth ticked up to 2.77%. Notwithstanding the slight tick up in hourly wage growth last month, real wage growth has been anemic in spite of low unemployment rate for some time now. The current relationship between unemployment and wage rate are not in line with Phillips curve, an economic theory showing the inverse relationship between inflation and unemployment. Tight labor markets have historically tended to place upward pressure on wages and inflation. Yet U.S. consumer prices and wage inflation remain modest despite a nearly eight-year U.S. economic expansion and an unemployment rate that has already dropped below the Federal Reserve’s estimated “natural rate of unemployment”. This situation has perplexed many researchers until now. It is likely that some transient factors not visible are playing role in keeping wage growth moderate. However, mix of strong factors like baby boomer retirement, every day 10000 retiring and expected to continue 2030 as per American Association of Retired Persons (AARP) research, a decline in the rate of union membership for private-sector employees  to 6.5%  in 2017 from 16.8% in 1983 (Bureau of Labor Statistic), contract restrictions prevented workers from shifting their jobs for better and highly paid, Lagging minimum wage which is currently at $7.25 an hour has not increased since 2009, automation and globalization have both made it easier for business to find cheaper alternative, outsourcing. Though, it is unlikely that such factors will be able to keep the wage growth subdued amid low rate of unemployment for long. The statements from the Federal Reserve reflect this concern.