03/29/2024

As Economy Grows, Why Aren’t Wages Rising Faster?

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.

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