The unemployment rate has been at or under the 5 percent threshold since the summer of 2015. The Federal Reserve is ramping up its rate hike campaign because, in its estimation, job market growth has hit its limit. Business surveys point to an increasingly difficult time finding qualified workers, a typical precursor to wage gains for regular Americans.

Yet at a time when the middle class should finally enjoy a shift in fortunes relative to sky-high corporate profits and CEO pay, they aren’t. The latest data shows that “real” wages -- that is, adjusted for inflation -- are actually dropping (chart below).

That’s right. In terms of purchasing power, American workers are once again falling behind.

This is something of a conundrum. Ed Yardeni of Yardeni Research compared wage growth to survey-based data of “unfilled job openings.” The last time small-business owners were having this hard of a time filling open positions was back in 1999-2000. But wages aren’t growing anywhere near as fast as they were then.

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That’s pretty bad, but things now look like they’re going to get worse. Inflation is accelerating to the upside, led by things like shelter costs.

Yet wages are taking a step down, as measured by the Federal Reserve Bank of Atlanta, which estimates non-inflation-adjusted wage growth slowed to 3.2 percent annual rate in February from 3.9 percent in November. Back in 1999, wage growth averaged around 5 percent. And near the end of the last business cycle in 2007, wage growth was clocking in at a rate better than 4 percent.

What’s causing the tepid performance? According to economists at Bank of America Merrill Lynch, four main factors are combining:

Wages didn’t adjust downward enough given the job losses suffered during the financial crisis and recession due to the wage “stickiness” phenomena: Businesses can’t cut worker pay to match new market conditions for fear of demotivating them. They can either fire them or freeze wages for an extended period.



Demographics are playing a role as well, as high-paid baby boomers increasingly leave the workforce to be replaced by younger, lower-paid workers, thus dragging down measures of average wages.



Of the 16 million jobs created since December 2009, a “significant share,” according to Merrill economists, have been in low-wage sectors like food services and retail.



And finally, research shows that employed workers enjoy an advantage in the job market relative to the unemployed, with starting wages about a third higher. Since millions of Americans lost their jobs during the recession and subsequently found new work after a period of joblessness, this dynamic likely depressed average wages.



What will it take to turn things around? According to research from the Cleveland Fed, what’s needed is a boost to recently sluggish labor productivity, which in turn will require stepped-up corporate investment spurred by things like entrepreneurship, new business formation and increased market competition.

The Merrill economists are optimistic, noting that headwinds to wage growth should subside as the unemployment rate declines to their target of 4.2 percent by the end of 2019. A lot is riding on that optimism being well placed.