Until recently labor compensation had grown only modestly, at average annual rates of around 2 to 2–1/2 percent. More recently, however, we have seen a welcome pickup in the growth rate of average hourly earnings for all employees and of compensation per hour in the business sector.
These improvements appear consistent with some signs of better growth in economic activity, although I’ll come back to this point in a few minutes.1 Despite these improvements, there is still a fair degree of spare capacity in the labour market.