Here's what happens in the labor market a few quarters before wages go up
Tuesday's job openings & labor turnover survey (JOLTS) report, which breaks down job openings, layoffs, and turnover, could give us a big clue on where wages are going.
In a research note, UBS economist Sam Coffin looked at the relationship between the number of unemployed people per job opening and a broad and reliable measure of wages and other employee compensation.
Coffin observes that openings have been increasing and the number of unemployed people has been decreasing, potentially leading to wage inflation, signs of which showed up in the Q1 Employment Cost Index (ECI).
"The rapid rise in the job openings rate suggests increasing wage pressure-a signal that was reflected in the Q1 pickup in the Employment Cost Index," he said.
The JOLTS report will give us a new data point on job openings from April, allowing an updated measurement of how many unemployed workers there are for each opening.
The horizontal axis of the chart shows the quarterly average number of unemployed workers per job opening. As you go to the left on that axis, there are fewer potential applicants for each opening, indicating a tighter labor market. The vertical axis shows the year over year percent change in the ECI private wages and salaries measure, two quarters after the job opening data.
There is a clear relationship between the two measures, with lower numbers of available workers strongly correlated with larger increases in employee compensation over the following months. In particular, based on Q4 2014 unemployed workers per job openings data, the Q2 2015 wages and salaries number should have something around 3% year over year growth, stronger than the last few quarters.
