Relatively slow wage growth in U.S. surprises economists
The economy today has almost everything experts look for as a sign of health — new jobs are popping up around the country, the unemployment rate has fallen to the lowest level in a decade, and consumer and business confidence is high. But one thing that really matters for workers has been stubbornly absent: strong wage growth.
The pay that workers take home has risen a little since the depths of the recession, but not much. Once you factor in inflation, wage growth is so low that workers are hardly better off than they were a year ago. Over the past year, average hourly earnings have risen just 2.5 percent, according to a recent report on April job growth.
The trend is disappointing — and somewhat surprising. Given strong job growth and low unemployment, many economists had been expecting that wages would be rising faster by now.
Current wage growth “is not what we would expect at this point in a recovery,” said Tara Sinclair, an economist at George Washington University.
No one knows precisely why wage growth has lagged behind, but economists have a few explanations:
• Too many people left on the sidelines: Since the recession, the unemployment rate has not been a great indicator of how much slack is left in the labor market.
That’s because the unemployment rate, which was a low 4.4 percent in April, counts only workers who do not have a job but are still actively looking for one.
“We have recovered a fair amount, but we still have a way to go,” said Elise Gould, a senior economist at the left-leaning Economic Policy Institute. “If there was less slack, then employers would have to be offering better pay to attract and retain the workers they want, and they just don’t have to yet.”
• We’re not getting much more productive. Other economists find different reasons for lagging wage growth. One is that gains in productivity — a measure of how much a given worker or machine can produce — have also been sluggish of late. That is a worrying sign, since productivity gains are what really determines improvements in wealth and living standards over generations.
But blaming productivity for slow wages is not a full explanation, because economists in turn debate the reasons behind sluggish productivity. Some fault measurement issues. Some point a finger at government policies that have failed to encourage investments in machinery and technology. Others say it could just be because of natural ebbs and flows in innovation.
• Weak growth in wages may reflect the difficulty workers have asserting their bargaining position in the current environment, said Jeremy Lawson, chief economist at Standard Life Investments.
A dramatic decline in unionization in recent decades has left workers less able to bargain with company owners for pay increases. At the same time, globalization has allowed companies to be more mobile than ever before. If labor gets too expensive in one location, companies can just move.