If you need further proof that the nation’s formerly sizzling job market has gone cold, look to what had been perhaps the hottest part of the post-pandemic hiring frenzy: pay for newly hired workers.

After adjusting for inflation, average wages for new hires fell 1.5% over the 12 months ending in July – from $23.85 an hour to $23.51– the largest such decline in a decade, according to an analysis of Labor Department figures by the W.E. Upjohn Institute for Employment Research.

By contrast, inflation-adjusted earnings for typical workers staying in their jobs rose 2.3% during the same period, the Upjohn Institute study shows.

When the economy is accelerating, pay increases for new hires tend to outstrip those of existing employees as companies rapidly add positions and compete for a limited pool of job candidates, says Brad Hershbein, a senior economist at the Upjohn Institute. As job openings multiply, workers switch positions more frequently, further pressuring firms to fill openings and ratchet up wages.

“When the economy slows,” as it’s doing now, “that flips,” Hershbein said. Businesses still provide solid raises to existing staffers so they don’t lose them but there’s far less urgency to pay up to attract new workers, he said.

How is the job market doing right now?

The figures underscore that the labor market is softening more dramatically than the monthly jobs report shows and has been doing so for a longer period than believed, Hershbein says.

In August, U.S. employers added 142,000 jobs but have added an average of just 116,000 a month from June through August, well below the average 211,000 the previous three months, recent jobs reports show. Still, the unemployment rate, which the Federal Reserve watches closely, dipped back to a historically low 4.2% after rising to 4.3% the prior month.

The more worrisome data on new hires’ wages should help convince the Fed to cut its key interest rate by a half percentage point at a meeting this week now that inflation is easing and the job market is cooling, said Julia Pollak, chief economist of ZipRecruiter, a leading job site.

Recent hires, she added, “are on the bleeding edge of the workforce and they’re more sensitive to changes in the economy” than people staying in their jobs.

A ZipRecruiter survey in the second quarter suggests that job seekers have quickly lost leverage. Just 58% of U.S. workers increased their pay when they switched jobs, down from 70% previously. Just 30% of new hires said they were actively recruited, down from 46% early this year. And the share of new hires negotiating their salaries tumbled to 26% from 43%.

How much will the Fed cut rates in September?

But after the Fed lifted its benchmark rate to a 23-year high of 5.25% to 5.5% to help tame inflation in 2022 and 2023, Pollak, like most economists, thinks Fed officials will start with a more modest quarter-point rate cut.

“They may be behind the eight ball,” she says.

What happened as a result of the 'great resignation?'

Early in the COVID-19 health crisis, new hire salaries surged. From July 2020 to July 2022, during severe post-pandemic labor shortages and the job-hopping craze known as the "great resignation," wages for new hires jumped a total of 7% after figuring inflation, outpacing raises for existing workers, Upjohn Institute figures indicate.

The softening trend in pay for new hires actually began more than a year ago, with their annual earnings growing just 0.5% in the 12 months ending in July 2023 after accounting for inflation. Yearly pay gains averaged 2.5% in the first half of 2022 but slowed to just 1.3% in the second half, the Upjohn Institute study says.

Yet according to the most widely publicized employment figures, the labor market was booming in 2022, with new hires of well over 6 million a month, above the prepandemic level. And net job gains – after accounting for hiring and employee departures – averaged a robust 377,000 a month.

The new hire wage numbers reveal “the labor market was slowing for a lot longer than commonly thought,” Hershbein said.

That means it could take longer for the Fed to jolt the economy and job market by lowering interest rates next week and in the coming months.

“It’s like a freight train” that takes some time to stop and then propel in the other direction, Hershbein said. “Are we going to have a recession? We haven’t yet but we’re getting closer to that point.”