Wage growth has continued to be the number one indicator to track in the monthly jobs report. Nominal wage growth has been slowly climbing over the last several months. Over the last three months, year-over-year wage growth averaged 3.3 percent, up from 3.2 percent the prior three months, and 2.8 percent the six months before that. Wage growth has still yet to reach levels fast enough—and for long enough—to reach full employment and restore labor’s share of corporate-sector income. At the pace of growth we’ve seen in recent months, however, I’m optimistic that the economy will continue on track toward genuine full employment.

One of the reasons I’m optimistic is that more and more workers are returning to the labor force. And, the vast majority of the newly employed are coming from out of the labor force, so lots of those workers who have (re)entered the labor force are getting jobs. I’m unconcerned by the slight increase in the unemployment rate over the last couple of months. The unemployment rate has sat at or below 4.0 percent for nearly a year. As the labor force participation rate continues to recover, the unemployment rate may rise, but those increases will be for the right reasons as more workers grow optimistic about their chances in the labor market.

In the figures below, I take a closer look at the labor force participation rate and the share of the population with a job. I’m going to focus on trends in the prime-age population, with attention to 25- to 54-year-olds to remove any possible confounding factors due to retiring baby boomers at the top end or longer years of schooling at the bottom end. The figure below shows the prime-age labor force participation rate (LFPR) in blue and the prime-age employment-to-population ratio (EPOP) in green. The prime-age LFPR is the share of the prime-age population either with a job (employed) or actively looking for work (unemployed). The prime-age EPOP is the share of the prime-age population with a job (employed). The denominator is the prime-age population for both lines and the space in between can be roughly thought of as the unemployment rate. (Technically, the unemployment rate is 1 – EPOP/LFPR and the space between the lines is the number of unemployed people as a share of the population, but they track each other well.)

In the three recessions shown here, the prime-age EPOP falls steeply, while LFPR’s decline is much shallower. This means there are more unemployed people, that is, more people who wants a job and are actively seeking work so they are not in the EPOP, but are counted in the LFPR. In the last full business cycle, 2000–2007, both the LFPR and EPOP failed to return to their pre-recession levels. After falling precipitously in the Great Recession, the prime-age EPOP began its steady climb back in 2012. The distance between the EPOP and LFPR began to shrink in that period, while the LFPR was still falling. It looks like more workers seemed to despair of finding work and left the labor force even as the unemployment rate began to fall. But, since 2016, the prime-age LFPR began to rise as well. This period is also defined by an unemployment rate that continued to decline, but more slowly.

The fact that the labor force continues to grow is a positive sign for both those workers and also the labor market as a whole. Over the last year, payroll employment has been strong enough to keep up with the growth in the working-age population and even pull significantly large numbers of additional people off the sidelines and into the labor market. This rate of employment growth indicates that it is unlikely the economy has unambiguously reached full employment, but the trend continues to move in the right direction. And, make no mistake, we’ve never thought these displaced workers would be sitting on the sidelines forever. In fact, we’ve been expecting the workers to return to the labor force for years. While others claimed that these workers were permanently displaced, we were convinced the weakness was primarily driven by continued slack demand and that when this demand growth improved, workers would return.

While the overall prime-age population tells a useful story, men and women display a somewhat different pattern over the last 30 years. Again, here I’ve limited the analysis to the prime-age population. The top two sets of darker lines are for men, the bottom for women. This makes it clear that women’s participation in the labor market is consistently lower than men’s. Within each grouping, the top (blue) line represents the within-gender labor force participation rate and the bottom (green) line represents the within-gender employment-to-population ratio.

Men’s participation in the labor market has shown a steady but slow decline over the last 30 years, while women exhibited increases in participation until 2000, on the heels of increasing their participation in the labor force over much of the second half of the 20th century. Since 2000, women’s participation has softened a bit, though it has come back more steadily over the last four years. Men’s has just begun to see signs of life and has exhibited slow improvements over the last couple of years.

What’s particularly striking in this figure is how much steeper the fall in men’s EPOP was in the Great Recession. While men were already on the upswing, however, women’s EPOP was still bottoming out. These differences can be primarily attributed to occupational segregation, the concentration, for instance, of men in occupations such as manufacturing and construction that are more subject to swings early in the business cycle. EPOPs for both men and women have been rising steady since 2014. Women’s EPOP has now exceeded its 2007 peak and continues to climb toward its level in 2000. Men’s EPOP has yet to hit pre–Great Recession levels, but continues to move in the right direction.

As slack continues to be soaked up by the growing economy, employers will have to pay more to attract and retain the workers they want. This brings us back to wage growth, which remains one of the most important indicators to watch in Friday’s jobs report. Alas, nominal wage growth for private-sector workers and even nominal wage growth for production/nonsupervisory workers offers only a limited view on wage growth in the economy today. One of the major benefits of a full employment economy is that wage growth isn’t simply strong for workers at the top of the wage distribution, or for workers with more educational attainment. Younger workers, black workers, workers with lower levels of educational attainment, and workers at the middle and bottom of the wage distribution are disproportionately boosted in a stronger economy just as they are disproportionately harmed in a weaker one.

To get finer-grained estimates of what’s happening to wage growth for particular groups of workers, we have to turn to the Current Population Survey Outgoing Rotation Group (ORG). The ORG is a household-based survey, not an employer-based one like the payroll survey, which each month provides widely reported estimates of job growth and wage growth for private-sector workers. This is important because this means the ORG can not only ask questions of wages, but also about the demographic characteristics of respondents.

A couple weeks ago, EPI released our State of Working America wage report for 2018, with comparisons to earlier periods as well as analysis by gender, race, and educational attainment. A key finding was a pickup in wages for the lowest-wage workers over the last few years. Since 2007, the strongest growth in inflation-adjusted (real) wages has continued to be within the top 10 percent of the wage distribution. But there was also a significant increase for the lowest-wage workers. The wage growth at the bottom can be partially attributed to more workers finally feeling the effects of the growing economy in their wages on top of a series of state-level minimum wage increases. Looking at those data, it appears that the economic recovery is finally hitting workers at the lowest end of the wage distribution.

Unfortunately, those signs are not to be found for all workers across the economy. Much of the 2000s and 2010s have been characterized by growing wage inequality and slow or stagnant wages for many. Black–white wage gaps have worsened since 2000, and the bottom 50 percent of college-degreed workers have lower wages today than in 2000. Gains for some in the last couple of years have barely if at all made up for lost ground, and the economy needs to be allowed to reach and stay at full employment for an extended period for the gains to reach all workers. My recent paper allows us to see below the topline wage growth number released on jobs day. Looking below the headline numbers shows a great deal of variation in how the economy hits different demographic groups as well as different wage levels. What I’ll be looking for on Friday is continued improvements in participation, increases in the employment-to-population ratio, and stronger wage growth.