The wage gap between those who keep their jobs and those who change them narrowed in July, the latest sign that the U.S. labor market is cooling.
New data According to ADP data released Wednesday, the average year-over-year wage increase for job changers fell to 7.2% in July, down from a 7.7% increase seen in June. Meanwhile, pay for workers who remain in the same job rose 4.8%, its slowest pace of increase since July 2021.
The gap between the two figures is narrowing, indicating that the benefits workers gained from leaving their jobs during the post-lockdown hiring boom continue to erode.
“The benefits of job-hopping have diminished greatly,” ADP chief economist Nela Richardson said on a call with reporters Wednesday morning.
Other data also point to a cooling labor market this week. The ADP employment report showed 122,000 private payroll jobs were added in July, below economists’ expectations of 150,000. Meanwhile, the latest Job Openings and Labor Turnover Survey (JOLTS) showed that quits, which are seen as a sign of confidence among workers that they will find a new job, fell to 3.28 million in June, the lowest level since November 2020.
Overall, the data reflect a looser labor market, with workers less eager to change jobs. This sentiment among workers explains the recent slowdown in monthly job gains, Richardson said.
“It’s no longer about replacement hiring or a revolving door in the labor market,” Richardson said. “It’s really about companies hiring now in this market because they’re trying to grow in a certain area, not necessarily replacing workers who quit and change jobs.”
While it may be a less attractive outcome for workers, Richardson added that the slowdown in wage growth is a positive sign for the Federal Reserve in its fight against inflation.
“Wages and salaries are the bridge between the labor market and inflation data, and we are confident after three years of looking at these numbers that if inflation picks up – and no one thinks that’s likely at this point – it won’t be because of labor,” Richardson said. “We’re seeing steady, sustained declines in wage growth that fit with the overall picture of inflation also cooling, along with the labor market.”
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