Being cautious is right move given baffling US wage lag

Washington

THE great wage mystery deepens. In economic recoveries, there usually comes a time when strong job gains lead to strong wage gains. Businesses must pay more to recruit and retain the workers they need. Not this time - or at least not yet. The unemployment rate has dropped from a peak of 10 per cent in October 2009 to 5.6 per cent at the end of 2014. But hourly wage gains haven't accelerated. They've plodded along at about a 2 per cent annual rate, roughly matching inflation.

Economists are baffled. "This labour market recovery looks different from anything since World War II," says University of Chicago economist Steven Davis. Depending on the indicator, the job market appears either tight or loose. Low unemployment rates suggest tight, Mr Davis says. So does the average time it takes firms to fill a vacancy; at nearly 25 days, it is just above levels before the Great Recession. But weak wage growth and the high share of jobless out of work for more than six months - a third of all unemployment - indicate a loose market.