The weak link in America's robust labor market

By Daniel B. Kline/Motley Fool

Despite the nation being near full employment, median annual base pay in the U.S. grew only 1.2 percent year-over-year in July to $51,120, according to Glassdoor. 

That's a drop from 1.5 percent growth in July and a January peak of 3.1 percent. It's also the sixth straight month pay growth has come in at a lower rate than the same month a year ago, based on data from Glassdoor's Local Pay Reports. July's 1.2 percent increase represents the slowest pace of growth in three years. 

"While major economic indicators show that the labor market is healthy -- unemployment is low at 4.4 percent, 222,000 new jobs were added last month and there are 5.7 million jobs open in the U.S. today -- the benefits of this strong economy are not being shared widely among workers," said Glassdoor Chief Economist Dr. Andrew Chamberlain in a press release.

What's the problem?

In theory, a smaller pool of available workers should lead to wage increases. That's not happening, according to Chamberlain.

"Pay growth has been slowing since January, despite a strong and growing economy," he said. "Partly this reflects the fact that economic gains are not being distributed evenly among workers."

Glassdoor's Local Pay Reports show that many traditionally middle-skill jobs -- positions including office managers, buyers, operations analysts, project managers, marketing managers and sales managers -- have shown weaker pay growth. The data also shows that pay is rising at the top and bottom of the income scale.

Only three out of 10 of the jobs seeing the biggest salary increases are around or over the median base pay of $51,120 (table below).

Chamberlain believes there's a reason middle-wage jobs aren't seeing as rapid growth: "Some of this weakness in pay growth can be attributed to automation, which is beginning to affect jobs that pay right around the median wage in the U.S., which are typical middle-class wages," he said. "For example, loan officers are not as in demand when consumers can apply for and complete a loan instantly online, and the office manager role changes when businesses utilize software and self-service kiosks for their employees and visitors."

The squeeze will continue

If labor remains somewhat scarce, then companies may have more incentive to invest in automating jobs. In addition, if wages continue to rise at the bottom of the pay scale, it may give some employers more reason to invest in replacing human workers.

At the same time, the threat of automation gives a company leverage in negotiating pay. In theory, a company can say to a worker, we're willing to pay X for this job, but anything over that and we'll replace you with a robot. Businesses, of course, are rarely that direct, but it's the same math companies have used to justify sending jobs to other countries. 

Automation will, of course, also create jobs in higher-skilled areas (like programming the robots), but it should continue to keep wage growth in check for less-skilled jobs. 

This article originally appeared on the Motley Fool