Nominal wage growth has been slower than would be expected over the last year, particularly in light of an unemployment rate hovering around 4.0 percent. In a tight labor market, employers should be finding it harder and harder to attract and retain the workers they want—and, therefore they should be raising wages in order to get them. But, that’s not happening enough to move the dial on wage growth. In this preview post for jobs day, I’m going to review some reasons that do NOT explain slower wage growth, then discuss some far more compelling explanations.

In the last several weeks, some colleagues and I tried to dispel a few myths about why wages aren’t rising as fast as would be expected in this labor market. One reason wage growth could be slow is if lower wage jobs are being added at a disproportionate rate, but the composition of new jobs is not what is keeping wage growth so sluggish right now. Instead, we are simply seeing sluggish wage growth within a wide variety of job-types. Some have posited that our far-less-than-stellar wage growth right now could be due to workers not having the skills employers need. But that idea has the logic backwards. When employers can’t find workers with the skills they need at the wages they are offering, they will raise wages in order to attract qualified workers—if employers can’t find the workers they need among the unemployed, they will offer higher wages in an attempt to poach needed workers from other firms, who will then raise wages in an attempt to keep their workers, and so on. In other words, if there are skills shortages, we should see signs of faster wage growth for workers with needed skills. This fast wage growth for skilled workers should push up average wages, not weigh them down. Furthermore, if there was a credential shortage, we’d expect faster wage growth among those with more credentials, which has also not been happening in the past couple of years.

So, then what is it? One reason why employers may not feel compelled as of yet to raise wages is that the unemployment rate is overstating the strength of the labor market. There are still sidelined workers—not counted in the unemployment rate—who are returning to the labor market month after month in search of, and, in many cases, finding jobs. The simple fact of these would-be workers out there lowers the leverage today’s workers have to see faster wage growth from their employers.

Leverage is the key factor here. In a recent address, Alan Krueger summarized some of the ways workers leverage vis-a-vis their employers to negotiate for better wages has been reduced. It’s short and well worth a full read. But, I’m going to highlight a couple key points here. Specifically, Krueger discusses several ways in which employers’ disproportionate power to set wages have historically been counterbalanced by forces that boosted workers’ leverage. The big examples are the erosion of labor standards and the decline in collective bargaining. In addition, there has been an explosion of practices in recent years that augment employer’s monopsony power at the expense of worker’s bargaining power. For instance, the rise in non-competes and non-poaching clauses, which restrict workers’ outside options, as well as collusion in hiring or wage setting. And, this collusion is even easier when there are fewer companies competing.

So, where does that take us? Well, for one, it’s going to take an even tighter labor market to turn out the gains in wages for most workers. But, it’s well worth the patience in terms of the boost to low- and moderate-wage workers and the narrowing of employment gaps.

The last thing I’ll say about wage growth as we await the latest numbers on Friday is a warning not to be fooled by the “stronger” wage growth shown in the latest CEA report. For one, I think it’s really important to note that changing the metric for one month without taking a historical look with that same metric is sort of like moving the chains and the goal posts in the same direction at the same time. The benchmark for strong wage growth has never been zero, so, noting that a bunch of generally questionable adjustments move the past year’s growth rate above zero really doesn’t tell us much about how healthy the economy is, or how Trump-era policies have affected this wage growth.

For example, applying the same adjustments the CEA makes for the past year’s wage growth back in time would likely make the past year’s growth look even weaker than previous periods. We know that in earlier periods non-wage compensation did in fact move considerably faster than wages, as opposed to recent years when their growth has been comparable. Further, recent years have not necessarily seen demographic changes holding back wage growth any more than in previous periods. Moreover, if the goal is to correct wage measures for changes in the characteristics of the workforce relevant for wage growth, we would need to consider rising education levels as well, which should lead to higher not lower wage growth as the composition of the labor force shifts from lower to higher average levels of education. Finally, there’s the question of the effect of tax cuts. Whether or not the tax cuts boost average after-tax wages for typical workers is in question, but what is not is whether this happens year after year. It won’t. The tax cut provides a one-time shift in wages, not a change in the trajectory of wage growth.

In sum, wage growth isn’t strong enough to be reflective of a tight labor market. If the economy keeps moving as it has, stronger wage growth could well be on the horizon, but it hasn’t happened yet and how it’s measured doesn’t change that.