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Stagnant real wage growth is making me 'a lot more bearish,' a former Obama aide says

  • Real wages increased just 0.6 percent year over year in May.
  • The unemployment rate is at a 16-year low, though a measure including discouraged workers is at 8.4 percent.
  • Ex-Obama Labor Secretary Seth Harris says a healthy labor force should be seeing higher wage growth in this economy.

The unemployment rate is at a 16-year low and major stock indexes are scraping the heavens — but former Labor Secretary Seth Harris says he has reason to doubt the strength of the job market.

"To me the big number is always wages, real wages," said Harris, who served during the Obama administration. Real wages — the measure of wage growth factoring in inflation— increased by a seasonally adjusted 0.6 percent in May from May 2016, according to the Bureau of Labor Statistics.

"That's not the sign of a market where employers are bidding up the services of labor," Harris said Monday on CNBC's "Squawk Box." "So I'm a lot more bearish on the labor market than a lot of folks are, and I think that we're seeing a slowing in job growth."

A worker assembles a Nissan Altima mid-size vehicle at the company's North America manufacturing plant in Canton, Mississippi.
Daniel Acker | Bloomberg | Getty Images
A worker assembles a Nissan Altima mid-size vehicle at the company's North America manufacturing plant in Canton, Mississippi.

He said the anemic real wage growth is troubling because it indicates a lack of competition among employers for labor, even in high-skilled positions. In a normal labor market nearing full employment, employers would be forced to increase their wages as labor becomes more scarce.

"In most parts of the economy, even in skilled jobs, we're just not seeing the kind of dramatic real wage growth, sustained real wage growth we need to see," Harris said.

Despite historic lows in the narrow U-3 measure of the unemployment rate, wages haven't increased to Harris' satisfaction. That discrepancy could indicate an increase in the number of Americans leaving the job market altogether, said Harris and Abby McCloskey, a former director of economic policy at the conservative American Enterprise Institute.

"It's really difficult to say we have a healthy labor market if workers aren't getting a raise and if more and more Americans are deciding to leave the workforce," the founder of McCloskey Policy said on "Squawk Box."

The economy is flashing warning signs, McCloskey said, in part because of the effects of various federal benefits programs, such as food stamps, Medicaid and Obamacare, that create a disincentive for Americans to enter the workforce. Her prescription for the Trump administration is to expand the earned income tax credit, a benefit program that eases tax burdens for low- and moderate-income households.

"Aside from broader tax reform," McCloskey said, a more robust earned income tax credit "would be one of the single biggest things the Trump administration could do to boost workforce participation rates and wages."

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