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Here's Why Your Paycheck May Soon Get a Nice Bump

It's getting harder to fill open jobs these days, and that could help if you're looking for a raise.
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It's getting harder to fill open jobs these days, and that could help if you're looking for a raise.

Two more reports Tuesday pointed to the ongoing strength of the job market, after Friday's monthly government data showing the jobless rate fell to 4.4 percent in April, the lowest level in a decade.

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A separate report from the Labor Department showed that even as the number of job openings has risen to 5.7 million in the last few years, the pace of hiring hasn't grown as quickly. The so-called JOLTS report also showed that, since the recession ended, the number of people willing to quit their job has nearly doubled.

"That shows that people have pretty much overcome their fear of making a move," said Joel Naroff of Naroff Economic Advisors.

As workers have gotten more confident about quitting, employers report having a tougher time recruiting them. A separate monthly survey released Tuesday by the National Federation of Independent Business found that about a third of small companies had trouble filling jobs in April, the highest level in nearly 17 years.

Many of those small companies report that they plan to boost wages to fill new openings and hang onto the workers already on the payroll. That wage bump has already begun as the overall unemployment rate has fallen to a level that economists call "full" employment.

"With the pool of unemployed workers continuing to diminish, the surveys also suggest that the recent sluggishness of wage growth won't last," said Andrew Hunter, an economist at Capital Economics.

For reasons that economists continue to debate, recent wages gains have been relatively small by historical standards this late in a job recovery.

One force that may be holding back stronger gains is the large pool of workers who have left the workforce — either because they retired, went back to school or simply gave up looking for a job. Even as the job market recovered, the so-called labor force participation rate — the share of the working-age population that has or wants a job — has only recently bottomed out.

Those workers could represent "slack" in an otherwise "tight" labor market, which means there could be less upward pressure than in the past. On the other hand, if the lower participation rate is permanent — the result of aging baby boomers retiring for good — jobs may continue to get even harder to fill as companies expand their payrolls.

It's a puzzle that policymakers at the Federal Reserve have spent a lot of time pondering as they've begun nudging interest rate higher. If they raise them too quickly, they may throw cold water on the economic recovery.

If the job market begins pushing wages up faster, though, the Fed will likely respond with a more aggressive pace of higher interest rates.