Con­di­tions are right for wage gains, but they’re ane­mic

Albuquerque Journal - - OPINION - ROBERT J. SA­MUEL­SON Colum­nist

WASH­ING­TON — It’s a mys­tery. The U.S. econ­omy seems strong. Since the nadir of the Great Re­ces­sion, em­ploy­ers have added about 19 million work­ers. The un­em­ploy­ment rate is 4 per­cent, near the low­est level since 2000. By stan­dard eco­nomic the­ory, the strong de­mand for la­bor should be push­ing up wages. But that isn’t hap­pen­ing. Wage gains of 2.7 per­cent roughly match in­fla­tion. And no one re­ally knows why. The puz­zle is not just Amer­i­can. It also ap­plies to much of Europe and Ja­pan. “Wage growth is still miss­ing in ac­tion,” de­clares a new report from the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment. Worse, the “un­prece­dented wage stag­na­tion is not evenly dis­trib­uted across work­ers.” While wages of the top 1 per­cent are grow­ing, they’re stag­nat­ing for most oth­ers. In­equal­ity and re­sent­ment worsen.

Nor does the me­dia agree on what’s hap­pen­ing. Many pub­li­ca­tions have run sto­ries ex­plor­ing the wage puz­zle. But oth­ers, no­tably The Wall Street Jour­nal, have re­ported that la­bor mar­kets are stronger than they seem. “Work­ers Wel­come Wage Gains, But Com­pa­nies Feel Squeeze,” said one re­cent Jour­nal head­line. “Hir­ing Boom Draws Work­ers Back,” said an­other.

Ac­cord­ing to gov­ern­ment fig­ures, there are now 6.7 million job open­ings — a record high — and “the rate at which work­ers are quit­ting their jobs is higher than it was be­fore the on­set of the Great Re­ces­sions,” writes econ­o­mist Michael Strain of the Amer­i­can En­ter­prise In­sti­tute in a col­umn for Bloomberg. Still, as yet, wages haven’t ex­ploded. One in­trigu­ing the­ory as­serts that psy­chol­ogy and norms have changed, writes Strain.

“Peo­ple who en­tered the la­bor mar­ket dur­ing and af­ter the Great Re­ces­sion have lived through some rough times and don’t have strong mem­o­ries of bet­ter times,” he writes. “I’m sure that many work­ers — both rel­a­tively new en­trants and those with long ex­pe­ri­ence — have had mo­ments when they felt lucky to have a job at all. Even though the econ­omy has been strength­en­ing for years, are work­ers reluc­tant to go into the boss’s of­fice and ask for a raise? Like­wise, are em­ploy­ers used to re­sist­ing in­creases in their pay­roll obli­ga­tions?” Maybe. Strain ad­mits that this is just a guess, and find­ing cor­rob­o­rat­ing ev­i­dence is hard. He also use­fully lists other the­o­ries. With thanks and apolo­gies to him, here’s a sum­mary of his sum­mary.

(1) There’s more “slack” in la­bor mar­kets than stan­dard em­ploy­ment statis­tics in­di­cate. Peo­ple who had given up look­ing for work are re-en­ter­ing the job mar­ket. More than 5 million peo­ple say they’d like a job but aren’t counted in the la­bor mar­ket be­cause they’re not look­ing.

(2) De­mo­graph­ics — the ag­ing of Amer­i­can so­ci­ety — dis­tort re­ported wage changes. As well-paid baby-boom work­ers re­tire, they’re be­ing re­placed by younger and not-so-well paid work­ers, even though their wages may be ris­ing. But the ef­fect is di­luted by the loss of re­tirees’ high wages.

(3) Em­ploy­ers are com­pet­ing for work­ers “us­ing levers other than wages” — bet­ter fringe ben­e­fits, sign­ing bonuses, laxer over­all stan­dards in hir­ing. Al­though these have eco­nomic value, they don’t boost wages.

(4) Some em­ploy­ers re­frained from cut­ting wages dur­ing the worst of the re­ces­sion and are now try­ing to off­set these higher costs by de­lay­ing new wage in­creases.

(5) There is no prob­lem — only a mis­in­ter­pre­ta­tion of eco­nomic data. Strain cites a study by Adam Oz­imek of Moody’s An­a­lyt­ics that ex­am­ined the “em­ploy­ment rate” — the share of a pop­u­la­tion with a job — as op­posed to the un­em­ploy­ment rate, and found that wages are “grow­ing at a pace you would ex­pect.” Sim­i­larly, slow pro­duc­tiv­ity growth im­plies slow wage growth.

Strain de­clares him­self im­pressed but not con­vinced. Stay tuned to see which of these the­o­ries — or some­thing dif­fer­ent — is best vin­di­cated by events.

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