With the string of negative economic data this week, investors were bracing themselves for disappointment. The actual jobs report has proven that concern was warranted.

Only 136,000 jobs were added in September, lower than expectations of 145,000; and wages increased by just by 2.9% for the year, the weakest growth since July 2018. The best part of the report is the fact that the unemployment rate fell – unexpectedly – to 3.5%, its lowest level in 50 years.

But the low unemployment rate brings up a long-running and puzzling question – namely, the lack of significant wage gains. Productivity is increasing as Americans work more hours, but their wages are not reflecting that effort.

So why are wages not growing at a faster pace?

Income inequality

The gap between productivity growth and a typical worker’s compensation has grown significantly since 1979, with productivity increasing six times more than pay, according to the Economic Policy Institute.

Prior to 1979, there was a strong correlation between productivity and wage growth. From 1948 to 1979, productivity growth was 108.1%, while hourly compensation went up 93.2%. But the gap has been widening since 1979. Productivity went up 69.6% from 1979 to 2018, but hourly pay grew by just 11.6%, according to EPI.

Top earners set wages for the rest of the labor force. “They’re the ones who want more power in the economy. So the top 1%, their incomes are not only from the labor market, their incomes are also from owning businesses and stocks and other capital investments,” says Elise Gould, senior economist at the Economic Policy Institute. “So as workers have less power, a lot of that power has been concentrated in the hands of a few.”

Since 2007, wage growth has been strongest for workers in the top 10% of the wage distribution, according to the EPI. More recently from 2017 to 2018, median wages increased 1.6% over the year, while workers with the highest wages (at the 95th percentile) saw their wages grow 2.7%.

Economy favors employers

The number of unemployed people per job opening is 0.8, according to the latest data from the Bureau of Labor Statistics. That means that employers should be fighting for workers.

Yet many workers are still not in a position to leverage those labor shortages into wage gains. “The Great Recession was pretty deep and some people feel just lucky enough to hold onto a job. They may not be asking for raises and employers still feel like they have all the power because they did for so long,” says Gould.

Workers are contending with less bargaining power as unions have weakened and the prevalence of non-compete clauses has made it harder to switch jobs in pursuit of wage gains.

“One of the reasons why you get wage increases is you get a competing offer from another company. You get another offer and you either leave and take that job or you try to negotiate with your employer. But there has been a rise in people across the economy being forced to sign non-compete agreements which keeps them from being able to use that outside option to be able to get higher pay,” says Gould.