Interesting article. Flat wages are something that is being experienced in Europe as well. Wages are not something the super-rich depend on, so this is again a driver of inequality, since Wall Street is making record gains.
Employers including the State will only raise wages if they have no other choice. Right now people are only just beginning to recover from their 2008 losses and are not in a position to bargain. Normally in an economy like this people should be leaving their old jobs for better paying ones. However Public jobs are also stalled due to the systemic deficit and the sacro-saint tax cuts that will again mostly benefit the super rich.
If a supercharged economy like the US is experiencing now is not benefiting the common Man in clearly measurable elements like a simple series of raises, then this is seriously problematic, because a downturn is all but unlikely.
1
Welcome to the Dollar Store.
Americans - the economically middle class types - is slowly and continuously sliding into the group of the economically lower class. The pain of wage stagnation was not felt for a few decades with cheap Chinese products and Walmart... every Tom Cruise, Dick Cheney and Harry Truman could afford a big screen flat TV.
For a minority of Americans who did not belong to the middle class but economically lower class had Dollar Stores cropping up...everything for a buck, no matter the quality of quantity. When your wages flat-line there's solace in not worrying about buying stuff when its only a buck.
Now that minority is increasing in numbers, started shopping at Dollar Stores, and also commenting on New York Times discussion boards.
Maybe now things will change. But before, Welcome to the Dollar Store.
2
I'm not sure what the mystery is anyone with the job knows that your company does everything they can to avoid paying a nickel more - for anything. And when employees are told to make sacrifices and cut costs, management reaps the financial reward in the form of raises and bonuses
1
Henry George, "Progress and Poverty" (1879)
Still true.
1
I do not understand why this is such a difficult problem to solve. Wages should rise as unemployment drops, according to Adam SMith and Milton Friedman. American economists remain perplexed by the lack of rising wages.
Just maybe the problem is two-fold. First, when productivity increases, who gains the benefit of those gains to efficiency & profit? Workers? Do productivity gains EVER go to workers that produce the gains? No, as profits rise and dividends rise, the gains go to executive "compensation" and those wealthy individuals with 15% tax rate on their return for investment.
Second, the disappearance of unions has also assisted the inability of workers to even ask, let alone demand wage increases. Power is in no way bargaining between labor & management. Capitalisms skirt is raised, just as their incomes leap beyond the static wages of workers across America. So much for a FREE market. Serfdom becomes more and more a reality.
2
25 to 54 core labor group: 2000 84% participation, 82% employed; now 82% participation, 79% employed. The top line unemployment unemployment rate has become increasingly meaningless.
The low rate of unemployment is a result of demographics, which is why I focus on the core group. Why are more people in the labor market? Drug testing? Skills required? When I, closing in on 80) was young , there were all kinds of jobs in the refineries for anyone who could turn a valve. Ain't the case any more.
2
The corporate attack on collective bargaining and it's ongoing collapse over the past 40 years together with the passage of massive and repeated tax cuts for the uberwealthy and businesses are the primary sources of rising inequality and perpetually low wages. Inability to secure gainful employment in this economic environment keeps labor force participation low which then artificially lowers the official unemployment rate, giving rise to a not-very-mysterious mystery about non-existent wage growth. The wealthy have captured the bulk of productivity gains during the last half-century, leaving little behind for the rest of us, and this is a result of conscious, planned government policy, often described as neoliberalism.
2
@john riehle
Agree with your position on all but the term “neoliberalism”. How about neoconservatism and ultraconservative?
There is no mystery. Only economists paid to ignore the fact that the mega rich are taking all of the gains say that there is a mystery.
Notice that they did not compare wages to incline from owning capital, did not look at corporate profits, which have skyrocketed, and said nothing about the rise of the "gig" economy.
We live in a country that does not value work. Our country values capital and the people that own it.
Every year the owners of capital demand ever growing profits. They have to come from somewhere. They are coming from wages. Notice that if you ignore the ups and downs in their wage graph, the trend has been downward for decades, ever since we introduced Supply Side Economics.
Supply Side Economics is a hypothesis without an explanatory mechanism or any data to support it. It has never worked as advertised. From Reagan's first Supply Side Tax Cuts which caused a deficit despite being aided by a 10%! cut in interest rates to Kansas' tax cut disaster, Supply Side Economics has a record is failing every time, but global corporate mass media manages to forget that by the time the next experiment comes along.
Since 1980 we have slashed taxes by more than half, and average growth is down 40%. Under stagflation growth was higher than it is under Supply Side Economics. Do you think these authors would mention that?
Productivity is down because we stopped investing in the workers that actually produce stuff. Stagnant wages makes stress which lowers productivity.
6
The mystery of the know wage growth is the Republicans are being paid off to keep the farmers ,corporate leaders and small businesses in the ancient times of 2.00 a day wages forever. No matter what GOP gimmick you want to call it trickle down the famous fake plan to todays make America great again GOP baloney you will always have the Republican ideology less government and all the money for the rich and CEO's only. Get over it that is the only reason plus they the GOP don't want to share the wealth.
2
We can also blame those Republican voters who have swallowed the pitch that inorder for them (workers) to succeed, the most wealthy, shareholders and Corp execs must succeed at obscene levels.
You know, the old trickle down gag.
7
Stagnant wages in the face of record corporate earnings has, in my humble opinion, a sound explanation: Greed! And labor, as usual trumped by capital. So, what's new?
6
Wages remain stagnant. Corporations put their tax cuts into stock buy-backs/executive bonuses rather than growth/employee wages.
Middle cut tax cuts will be phased out while prices of basic goods rise with new tariffs.
Middle Class Trump supporters are being conned.
6
Companies aren't paying workers as much. That is why wages are slow to grow, Watson.
Maybe I'd add to the list of reasons the fact that the government picks up the slack for low-wage workers through benefits like SNAP. What if the gov't instead forced certain companies to pay workers enough to live on?
2
I think it's clearly related to corporate greed. I may have missed it in the article but I did not see any wage growth breakout comparing CEO wage growth with the worker-bee wage growth. I have seen other articles that clearly showed CEO wage growth has been at a much, much higher rate than for the workers on the front lines. No company can conduct business without the workers but they have found that there is no downside when they consistently under pay workers.
I think corporations today are so focused on short term profits for share holders that they finally figured out that if they all suppress worker wages then workers have no ability to change jobs for better pay. In many market niches there are only a few large corporations to work for. Republicans have been supporting corporate interests and reducing any protections for workers in their policy choices for decades. They have forgotten that it is the spending ability of the masses that keeps our economy afloat. Keep squeezing the middle and lower classes and watch the economy grind to a halt. Some one has to be able to buy your widgets and services and todays masses have less and less to spend.
The corporate tax give away did not raise wages. Again all about corporate greed and no need to take care of their labor force.
6
Mystery? Its only a mystery because the "experts" are looking at their numbers trying to extract what the numbers cant explain.
Decimated Unions.
Constant gutting of employee protections.
Reclassification of employee status from full time to part time, or contractor.
To name but 3 reasons why wages are lower or stagnated, depending on the industry.
All the results of the concerted efforts of various Conservative lobbying firms, and the GOPs full-in complicity as the party to protect and raise Corporate profits. No matter the costs to employees and their communities.
Wages are not rising, because these forces have gotten all their ducks perfectly aligned. And they now own the WH, the advisory staff, Agency and Dept heads, and most of Congress. All the work and strategic placement of money have reached this pinnacle.
Wages will not rise, because the Employers now own us. Employees are now no more valauble then they were before the Great Depression, during the long years of abuse in the age of the Robber Barons, at the rise lf the Industrial Age, rampant child labor abuses...all pre Unions and solid legal employee protections.
These cute graphs and number charts do not explain these realities.
Our employers and Govt overlords have us right where they have long lusted after. Beholden to them, unprotected, without recourse.
Wages will not rise. As employers have no hard reasons to raise them. Because employees, those seeking work, have no power.
Wages will not rise.
8
This might be a mystery from the perspective of traditional economic models, but not to anyone who has been paying attention to all of the legislative capture and rent seeking activities of large businesses and the super-wealthy. The story comparing Sears of old to Amazon of today that appeared in the Times a few days ago, is a good example of the shift to emphasize profits at the expense of employees and community. I’m one of the lucky, highly educated workers, yet the institution I work for outlawed cost of living raises decades ago in favor of merit raises. But there is almost never any money for merit raises. Despite this, new people continue to get hired. The end result is that wages just keep dropping with respect to inflation each year. Switching jobs can help as long as you are young enough to not trigger age discrimination. We are in this situation because businesses want us to be in this situation and they have paid off politicians to make it easier to maintain the situtation.
5
The author of this article needs to read the comments and update the article. It’s not a mystery.
7
It’s not a mystery. It’s called ripping off the proletariat, which is an essential feature of capitalism.
6
This isn't a mystery, it's just capitalism. Capitalism says that you should pay your workers as little as possible, so employers pay their workers as little as possible. The counterweights to that kind of violence have been eliminated by the wealthy: labor unions (the most important), freedom to discuss wages with coworkers, government regulation, and progressive tax systems.
How do we increase wages?
- Encourage unionization
- Tax the wealthy
- Regulate the excesses of capitalism
It's not that we can't, it's that we're not being allowed to.
9
I sometimes wonder if there was a indirect relationship between increased power of unions and general increases in working class wages during the “rise” of Soviet style communism elsewhere in the world. This phenomenon continued after WWII when the AFLCIO did their part in the Cold War and aggressively denounced Communism in exchange for nominal Federal and corporate “support” for laws the underpinned collective bargaining. Once hardcore shareholder capitalism took hold in business schools in the 70s and corporate raiders, aided by Reagan and Thatcher’s full frontal attacks on organized labor, labor became a purely monetizes commodity.
Soviet Communism, once a sort-of “Sword of Damocles” hanging over international capitalism was imploding on its own and once it was “over”, the process of pure monetization of labor in the USA simply accelerated.
In a sense our current situation was the only “peace dividend” produced by the end of the Cold War. Cold comfort indeed.
5
No mystery; wages are not going up due to diversion of money into the holiest of holy, shareholder value. All done with the enthusiastic approval of the republican party and some democrats named clinton.
6
Globalization ... jobs shipped out, people shipped in.
5
The New York Times says people are "trying to solve this economic mystery." It was solved over 150 years ago by Karl Marx. While various strategies and policies are used, capital always tries to drive down/limit wages to increase profits. It does not care if everyone is working as long as wages remain as low as possible. Duh.
4
I've been reading about this "mystery" since Reagan was president.
7
Such a mystery! With so few unemployed, why aren’t workers exchanging lousy jobs for different lousy jobs?
4
Unions.
Higher minimum wage.
Try that instead of focusing on the kazillionaires need for a dozen more houses, boats, moats and coats.
5
remember PATCO? when Ronald Reagan took on the air traffic controllers? the Republicans have tried their damndest to kill off just about every labor union in the country. problem is collective bargaining works. could it possibly be that so few employees are organized that it has depressed their wages? could that possibly be??
3
This is as insulting to all workers as it would be to write a piece dismissing women's claim of harassment and assault. In the words of Deep Throat: "Follow the money."
There is no mystery whatsoever. To continue to entertain the notion that workers do work that has value realized only by the capital class is the same claim of rape of a woman and it's time to speak as plainly about it as we now are starting to do about sexual violence. Workers are producing value, it's that business devalues, dismisses, silences and punishes what workers do just like women have always been.
Reason 2, less worker organization is merely a symptom of the rape of workers by the capital class. Reason 1, traditional economists' definition and use of inflation, not only does not explain but reinforces the truth of the explanation since it does not cover most of the usual household expenditures of workers nor the sliding of health care cost from business to workers. Inflation, real inflation like the cost of cellular phones and data, increased household utilities, school expenses and or course healthcare, none of which count in official inflation, is more greatly a measure of how violently and often workers are being raped by their employers who in effect also have the police, courts and any form of justice sewn up with bigger and bigger monopolies, monopsony and the control of government to protect their business practices.
4
Another factor harming workers' bargaining power, I think, is information technology. This technology works to the advantage of employers because of employer concentration. (These are the same tech companies that advertise on NPR.)
Employers now can pit more job seekers against each other, using employment databases, or social media to weed people out. Job seekers must search more widely, which won't hurt the highly skilled minority, but undercuts everyone else.
3
Compare the skill level and thus the pay of current job openings against the job openings in 2001 and you'll find your answer.
Two employed semi-skilled workers replacing one high-skilled worker decreases the unemployment rate while simultaneously decreasing the average or median wage rate.
9
The rise of inequality has many reasons and has been a long-term process. The lack of wage gains also is a result of many reasons over a long period of time. If we want to raise wages in order to improve workers' lives, we need to change labor and employment laws to favor the interest of working people and we need to be dead serious about enforcing those laws.
If the economy had not grown over the last 35 years, then I can understand wages not going up. But all of the growth in the economy has gone to the top 1%. That is not by accident but by a deliberate set of public policies and practicies which is being exacerbated by Trump and his cabinet of Billionaires.
11
It's no mystery, but liberal news outlets must frame it as such because the Democratic party played a big part in keeping wages down:
approving mega-mergers,
not lifting a finger to help unions,
Obama's 2015 proposal for a minimum wage was
$10/10/hour,
supporting the various trade pacts, all of which exert downward pressure on wages.
8
Mystery? What mystery? It's a terrible combination of greed and ageism. How difficult is that to figure out?
11
I'm no expert on any of this. But I think one reason wages haven't grown is because employers know they have the upper hand. You don't want to work for that wage? Fine, get out of here; I'll get somebody else to do it. The decline of unions and the rise of right-to-work are part of this, of course. Without worker protections, there is nothing to stop employers from offering paltry wages while they amass greater profits.
15
@B I think you're onto something. But the article discounts that idea by showing the wage gains of unionized workers has declined along with non-union workers.
What that analysis misses is that since union membership has declined, unions have less bargaining power because there are fewer other unions that will support their labor actions. Also, businesses have more credible threats in negotiations of closing and relocating. And finally, the Government is less supportive of unions so arbitrators are more likely to favor the arguments of of businesses when making settlement decisions.
8
I've been opining this for years. We're in a new gilded age.
3
One thing that economists constantly fail to talk about is change from one person to two person working households.
When wage increases due to productivity gains started to go negative against inflation in the 1970's for the average worker, their spouse, usually a wife, entered the workplace.
The income from that second job put off the reckoning of the average middle class family that was falling behind due to inflation. After three decades of 2% inflation that second income has all but gotten eaten up by that inflation.
The fact that the pool of non-participating spouses has all but dried up since 1975 should, have and be putting, large upward pressure on wage growth. The fact that it has not done so tell us that we are missing something fundamental that we cannot see.
10
@JD How about globalization with the new credible threat that employers can close and relocate if workers don't accept offered wages? That explains the decline of productivity growth that I think reflects declining investments by business in workers in favor of acquisitions, relocating, and higher payouts to executives and shareholders.
5
@JD I have often wondered why no one brings up the shift from one-earner to two-earner households. According to Pew, in 1960 72% of households were supported by a single earner; in 2012, only 37% were. This would seem a major assault on the living standards of the working class, yet is seldom mentioned.
7
There is a one word answer for why wage growth is not keeping up: Greed.
It's the same reason wages didn't keep up with productivity growth when it was booming.
I laugh when business owners say they can't find employees for some of the semi-skilled positions. They want to pay these folks $13/hr (and they call that a "good" wage") but they will only hire people who are already experienced. Under no circumstances would they train them, you know like businesses used too.
Labor is a complete commodity now. Just like soybeans, or coal. As with all commodities business will pay as little as they possibly can in the short term and not think about the long term at all.
21
What about the gig economy? How have we factored in people who are driving Uber or Lyft? Or the remote freelance contractor positions that tech companies love? This type of loose employment boosts the jobs numbers, but often doesn't pay anything near the wages of a full-time permanent position.
15
Every monthly employment support should include the median income from the jobs that were created and from jobs that were lost. Simply saying that the country created 100000 jobs doesn't tell the story.
8
What category is it again that measures how companies laid off millions of workers, distributed the same work between the lucky remaining workers, and then never have replaced the number of workers so they'd have the same workloads.
Even though the business stayed the same, or out grew what it was prior to the crash. Everyone I know does more work, works longer hours, still doing the work of former workers who were let go.
Getting new head count is a joke. Even though the company is doing much better today, making record profits, corporate just put out a memo to upper management to plan for 5-10% reduction in headcount next year.
We are still feeling like we are getting ground, lucky to have a job, and if we don't like it, there's the door.
What metric measures that? That were are still in "an employers' market"?
12
@medianone Presumably, that metric is productivity. If employees are doing the work of the laid off workers, that should be reflected in greatly increased productivity. But the data shown here is that productivity gains are declining along with wage gains.
There are two reasons I am pretty certain have led to this:
1)In 2001 shareholder management was a factor in how companies viewed labor decisions, back then if the economy was growing and the company was making money, raises were seen as a cost of doing business. These days stock analysts see employment gains and wage growth especially as an evil, and most companies today are slaves to the stock analysts. If a company shows growth in wages above inflation, stock analysts slam them, no matter how much they need workers. The result is that you don't have companies offer much in wage gains, because they are all doing the same thing. It isn't collusion, it is just all companies have the same stock driven philosophy.
2) The other reason is people who are employed now worry that the economy is going to go south again, and if they move to another company, they likely will be the first to be laid off. As a result, employees are more likely to stay put and take anemic wage growth then risk leaving. Offshoring and outsourcing play a role in this, too, despite Trump's bluster, with tech especially or manufacturing they always have that threat.
14
If people over 60 could opt into medicare when they lose a job, instead of having to seek employment for healthcare, or for the money needed to pay for same--many of us would drop out of the workforce. This could result in higher wages and better jobs for younger people. And I say that as a miserable employee hanging on to my last FT job for dear life, as explained in my comment.
18
There is a huge gap nowadays between the rich and, well, everyone else. I would say the answer lies somewhere in that very large, ever widening gap.
9
You didn’t mention the group that has experienced tremendous gains in wages: CEOs.
16
It's no mystery. One entire political party has devoted itself to increasing the labor supply at any cost even as automation is making eliminating ever more jobs.
4
My sister is a GM at a large hotel and she tells me that 90% of the applicants that are interviewed have limited availability because they’re working another job. Her company gave her an okay to offer more money to people with experience to try and get them to quit and come to work for them. She just hired a front office supervisor and it came down to, “What are you making there, because I can probably beat it.”
4
Take a look at banana republics and you will find that wages are always stagnant. The only time that wages go up a little is when there are increases in the price of food.
Thing of a banana republics where all of the political parties are dependent on money from businesses.
Now think of a nation that uses cheap illegal foreign workers, and decides to replace workers in the nation with cheap foreign workers.
Think that for over 17 years the US minimum wage has remained the same.
The reason why wages have been stagnant in the United States is that the United States is now a banana republic.
By the way food in the United States has raised in prices and expect an increase in wages.
Economists should study banana republics and then they will understand stagnant wages in the United States.
7
Mystery? What mystery? When you gut unions, increase inequality, allow corporations to get away with anything, and stop investing in the people’s growth and wellbeing then why would wages rise?
10
The global supply of labor has increased dramatically since World War 2. For example, Asia has added hundreds of millions of workers. In the US, women have dramatically increased the supply of potential workers. Econ 101 teaches us that the price goes down as the supply increases. The past decades have shown how hard it is for the global market to work through this glut of excess labor.
4
Maybe the wage-unemployment relationship has not materialized during this business cycle because it is not really a law. Maybe it is a choice-alternative that is not being chosen. For instance, maybe comapnies want profits to keep expanding more than they want to raise wages. The Great Recession taught them they could pay a lot less, and they see no good reason to alter low pay policies. After all, what stops them from sticking to low pay policies? Other companies? Well, thx to fangless anti monopoly policy, many industries are monopolies. Unions? Most are gone. Laws requiring wage increases? There are none. Face it, folks, the Libertarian right is in control, through zombie neoliberalism, and all the leading policy makers believe the nonsense peddled by Milton Friedman that markets know best and government should stay out of the economy. Well, that is what is happening, and workers wages have stagnated since the early 80’s, except for the top few percent. Welcome to Robber Baron Era, 2.0.
14
Here's a wage stunting factor I haven't seen mentioned. Non compete contracts pushed by corporations on even the lowest skilled workers. Here's what WaPo has to say - https://www.washingtonpost.com/business/2018/10/18/even-janitors-have-no...
So, scare your workers from leaving for better pay, and you no longer need to raise wages to keep employees from leaving. Mystery solved.
9
What's so good about the labor market? Unemployment figures take into account only those looking for work, not the people who do not work, who've stopped looking for work, who slouched their way through school and might never have had a job.
For the municipalities that have to take care of their families, or their girlfriends and offspring, the unemployment figures are meaningless.
2
How about two other aspects? Who really wants higher wages other than the worker? Higher wages equals higher inflation equals higher interest rates equals an eventual recession. Secondly, and more important: when wages have been held down for so long, why be productive? What is to be gained by working harder and producing more? In the last many decades, through good times and bad all industry has done is take away from labor and then just take the jobs and move them elsewhere anyway. If you will never be rewarded no matter what you do, no matter how hard you work, no matter how much you contribute to the profit of the company, why bother in the first place? All this time workers were told IF you give up unions, pay and benefits, you will be better off. And we won't move your jobs. Workers have been like rats in a Pavlovian experiment. Keep pushing the button for no reward. We need to see how long you will do that. Literally until the day you die. And what has industry been told? If you do absolutely NOTHING, we will give you a huge tax cut. Not even a button to push. At the end of the line, it will be the workers who pay for the tax cut. Through loss of their own tax cut and loss of benefits that would help mitigate their low pay. Stop trying to over analyze this. All you have to see is pay and benefits...flat for decades. Executive pay and profits....rising all that time. Republicans want you to accept more of that. The answer to your prayers.
11
Trickle-down economics, in its more recent incarnation, is little more than a completely legalized pyramid scheme. Human beings were not meant to serve as coerced chattel labor for some anonymous financial overlords.
9
@ubique Humans are meant to respond to the demands of their genes to make more copies of genes in newer vessels. That's about it. It's up to us to breed or not, fight or not, revolt or not, work or not, abuse or not, aid or not. So far, our genes are way more successful than we are.
@Chip
The pre-frontal cortex allows for inhibitory function. In a sense, we evolved just enough to have some semblance of self-control.
Resistance is not always futile.
if employers can get away with paying lower wages, they will...you don't need a harvard degree in economics to understand that.
eventually, people will organize into unions...again, and the entire struggle for higher wages and a better life will start over. IF we have time for another go-around!
4
Immigration increases the supply of labor.
Outsourcing reduces demand for labor.
5
Headlines like this one drive me NUTS! there is no grand mystery to unravel. Corporations are more profitable than ever; their boards and their executives just refuse to share the spoils with the workers whose productivity made those profits possible.
10
There is no economic mystery. It’s called out of control heath care premiums. Wages may not be increasing but the cost of benefits certainly are. All the Obamacare benefits like pre-existing condition coverage politicians and the electorate are so enamored with have to be paid for by someone and it’s the working stiffs. As socialist democrats move the country toward single payer "healthcare", wages will not only cease to go up, they will go down.
Single payer means employers don’t have to administer or pay towards employee healthcare, and costs will reduce due to government negotiated caps on drugs and services, bringing the US in line with other industrialized nations. Costs will reduce across the board, as obscene profits are curtailed.
8
Nice try but Europe manages to give everyone access to free healthcare and they haven’t gone broke. The answer is to push the greedy health insurance companies out of the equation. They add no value and are simply making big profits off of other people’s misery. Cut out the middle man
2
If you don't tax corporations (and Republicans don't) then there's no upward pressure to spend excess profits on the business. In the old days, they tax rate was high enough that people spent that money on wages and other business investments. Instead, it's paid out in stock buybacks and mergers.
And, of course, if you don't split up monopolies (and Republicans don't) then there's less competition for workers.
And if you control workers' health care (like American companies do) then they have less freedom to leave.
American voters don't stand up for themselves. The lazy rich are a far bigger problem than the lazy poor.
12
There is no 'economic mystery'. It is that the balance of power between workers and corporations has tilted precipitously and probably permanently to the corporations. Ever since the Reagan era, there has been a concerted effort to destroy unions and worker proles. There are plenty of jobs, but few that pay a living wage. I understand why some journalists have a blind spot over corporate power, they want to be promoted. As long as corporations can buy the laws they want through ridiculous rulings such as "Citizens United", we will continue to see greater inequality and profits over people.
10
My theory:
For a host of reasons, getting paid more has become a lost art. Collective bargaining simply does not exist for the vast majority of workers. You are now “on your own” while the overhyped gig economy, the “cult” of individualism and shareholder capitalism has isolated service sector workers more than ever. Getting paid more requires the near constant hunt for new and better opportunities and enough moxie to negotiate and sell ones self for the highest possible price. In 2018 many Americans simply don’t have the stomach for it. “Driving up the price of you” in the face of considerable economic and psychological headwinds made ever stronger following the 2008 catastrophe is not easy.
Shareholder capitalism is interested on one thing and one thing only...shareholder value. It does not give a whit about you the individual, your community, your family, your health/wealth/relationships...zilch...nada.
Our current “full employment” situation is fairly new and my guess is that it feels ephemeral to most Americans who are nominally content to simply be employed,
6
Sears closed and when they were doing ok before lousy Amazon their employees shared the wealth . The NYT's had a article recently at Amazon the share holders and CEO only get the money rewards. I can't see purchasing any more items from Amazon. They now have high state sales taxes to collect, high postage Trump just raised the stamps to 55 cents each and now a wage hike to 15.00 an hour. Your cheap shopping experience just went out the door. Plus if you return to many items they keep track and you are suspended . Give me brick and mortar stores any day,
2
@D.j.j.k. I just can't face shlepping around a mall or multiple stores to return home empty handed.
"An economic mystery" baloney. A labor market flooded with legal and illegal immigrants, many working off the books; an "unemployment rate" tabulated from part-time, low-wage, no-benefit jobs; workers who k now if they get a raise their jobs will be sent to Mexico or China under the "free trade" agreements this newspaper has supported for 40 years. Some "mystery".
3
@Marigrow Hilarious reasoning. Yeah, the reason people like those in my wife's company who had their wages cut in 2009 never got one penny of their reduced wages back is because of Mexicans working in completely unrelated fields (literally, fields). Good thinking.
Maybe it's because corporate America, which is now stronger and has a greater concentration of wealth than at any time in the last century, found out that they don't have to raise pay rates ; the rats will still show up to work in the morning simply because they know they have to pay their bills, so they'll accept substandard pay and like it, because they don't have a choice. Meanwhile, in the CEO suite, they're rewarding themselves for doing such a great job of getting more work done for less money - bonus time!
It is not a mystery. It is called greed. All hail the corporatists.
5
Great effort!
Hmmm... what a “mystery”!
Ya’ll act like the relationship between employment rates and worker compensation is strictly some sort of ‘natural law’ function.
The 1%, the financial class, and their bought-and-paid-for swamp critters are stealing from us, and they're doing it better than at any time since the Gilded Age.
Enough with the ‘gee, wages SHOULD be going up...? ... that’s a real head-scratcher!?’
4
What’s the mystery? CEO’s have taken all the money for their own bonuses and salaries while the rest of us have been made to understand that we’re replaceable and lucky to have jobs— our experience is not worth $$.
7
How much do we need to erase the phrase, “trickle down” from any sensible discussion.
Recently, I have begun describing my biggest fear in life as being, when all that trickle down money finally overflows the dam, that I will be dead.
RIP middle class! I also suggest pullin your head out of the ground and paying attention.
4
Wages are not rising because corporations are not feeling the heat. Why not? That is the question.
2
There are several possible contributing factors: 1) Reduced economic mobility: Well paid and even some poorer paying jobs are more specialized and require both qualifications and prior experience. This makes it harder for workers to switch careers. 2) Reduced geographic mobility: Wide disparities in housing prices and teduced relocation packages prevent workers moving to places where most of the jobs are located. 3) Some companies have the option to use technological advances instead of hiring more workers. 4) Some companies have the option to outsource jobs either to overseas subsidiaries or subcontractors that pay less for the same work. 5) Workers are still too taumatized by the Great Recession and see points 3 and 4 above. 6) Continuing decline of trade unions.
6
When the recession hit the first thing employers did was to reduce their workforce to the bare minimum. The less "valuable" employees were the first to go. Those that had transferable skills, or were willing to go the extra mile to acquire them, were able to pick up a new job relatively quickly. Those that were less attractive, for a variety of reasons, were less likely to be rehired. If fact, those who were most likely to be laid off were also least likely to be rehired. Employers quickly got used to having a lean workforce and employees had to adapt. This is how it is going to be going forward. At the same time, automation and outsourcing have eliminated many jobs. New industries do not have as many employees and those that they do have are highly skilled. e.g. biotech is a fast growing business around these parts. They are competing fiercely for talent. If you have the right skills and are in the right place and have a good track record, there are jobs. If you don't have those things, it's going to be hard going.
3
The unemployment rate is probably not capturing the data it used to. Lots of short term, contract or gig jobs will not qualify you for unemployment benefits so these jobs never show up in the data.
7
Wage growth is NOT a mystery. The rich take more now.
8
To quote my economist father: “everything goes up but wages.”
We are a plutocracy. The super rich have gamed the political system to ensure their profits are stratospheric, at the expense of workers. How else to explain the war on unions, the fight against a livable minimum wage, and other initiatives that only aid the corporate rich, but none of any of the rest of us? They don’t feel any responsibility to give back, despite all the advantages they get. They only take, take, take.
There won’t be a political uprising but there may be one tied to economic disparity. Wage inequality is THE issue of our time; it is the result of all the problems with our political system and it’s not limited to one nation, it is world wide. It is a slow moving catastrophe, and the individuals behind it will live to regret their part in it.
There’s a point at which repeatedly telling people to “eat cake” ends up with your head in a basket. I don’t think we’re that far off from there.
10
@RM
Thank you, I've been shouting this from the rooftops. Enough! Workers of the world UNITE.
3
Must be some convention amongst economists to feign ignorance as to why the oligarch classes and their pet legislators don’t share the spoils with the unwashed masses now that bargaining power has been neutralized due to a determined effort to wipe out unions.
If you think it’s bad now, wait until AI and robotics eliminates manual labor entirely, and Jeff Bezos, the world’s first trillionaire, controls 90% of the retail market instead of just 50%. I give us 20 more years at this current pace to move from neo-feudal to full blown feudal.
31
Not a word regarding the corporations' profits that went into their pockets and not their employees?? All through the 70s and 80s, and 90s production was up across the board and wages stagnated. This is the rich against everyone else.
18
Yes, exactly. There is no mystery. It is the rich.
2
I think Mr. Tedeschi "buried the lead". Consistent with the wage gap in other countries, both current and historical, is the enormous skewing of wealth, not wage, inequality. Non-wage wealth (capital appreciation, investment income, etc..) combined with favorable tax laws have, again, created a "super class" of owners. Even for high earners, the perception of "wealth" is somewhat illusory; the "bosses" are fewer than ever, and far wealthier. Unions? In the US, at least, since probably the late 60's, when ownership transferred from organized crime to big business, organized labor has effectively conspired with ownership to try and create a permanent worker class. And so far they've succeeded. But Rome always falls, unfortunately we have something bigger than Rome here.
7
@Medhat
A chart of wage stagnation (essentially reduction) plotted against the reduction of union representation is almost exactly parallel.
3
The answer to this supposed mystery is simple: The unemployment rate is wrong. It fails to capture millions of people who can't find work and have either given up looking and dropped out of the workforce or cobbled together this and that to keep body and soul together. Do you think people really want to be Uber drivers? Of course not. They do it because they can't find a regular job. I recently spoke to a manager who received 100 job applications for a decent-paying job with good benefits. Half of the applicants were overqualified for the position. If we really had full employment, he would have had only five or six applicants, of whom only half would be qualified. As far as want ads go, they are not an accurate reflection of labor demand. Companies often run them with no intention of filing the position (It's an internal trick to keep the job on the books, even though they have no intention of filling it). Also, job websites use algorithms that keep jobs listed for some time after they've been filled, creating the illusion of more openings than actually exist. Some big employers add to that problem by failing regularly purge their want ads, leaving up for months jobs that have been filled. The bottom line is that wages don't go up because the demand for decent, well-paying positions with benefits still outstrips supply.
20
@Christopher Hoffman
This is my theory as well. There is no way unemployment is this low. I have been unemployed for 10 months. I worked in middle management in the apparel industry in NYC which has been hit hard the last 5 years. There are zero jobs at my experience level and I am now probably going to accept a job and a drop in salary by 25K because I am desperate for work. BTW, I had to take a part time job at Whole Foods after unemployment ran out. So am I considered employed or unemployed??
12
This is exactly right. Unemployment is still very real and underreported. Corporations are not experiencing sufficient competition to raise wages. Employed workers are still squeezed for every drop of productivity. Uber and unreported self employment woth $ taken under the table don't seem so bad versus the grind. Corporations whine instead of training. I know plenty of underemployed friends, really smart and highly educated, but they dont know all the acronyms of IT. BUT, they could be trained very easily if corporations would get thrir act together and train them. Instead they expect the perfect candidates to walk through the door wrapped in a bow with ALL the desired experience across a litany of: IT platforms, software, hardware, middleware, database, front end, back end, business analysis, development,...
5
@Maggie
That high end grocery surely pays a living wage, right? Their prices are high enough.
Years ago in my youth, I used to game the airline habit of overbooking flights. Holidays like thanksgiving were a sure thing and I’d voluntarily give up my seat on flight after flight after flight.
Nowadays, planes are filled to capacity and rarely overbooked. Airlines have figured out how to use technology to allocate their resources.
So it is with the job market. Employers know exactly how much human capacity they need. So we’ve reached nearly full employment and wages don’t rise because employers don’t need to buy any more capacity than is absolutely necessary. Except for a few select fields, employers are taking profits over bidding for more or better employees.
We just need to wait a little longer for our 10% tax cut. Everyday Americans are next in line, Trump promised. Oh, and his really great health care he promised too.
14
There is no mystery, unemployment went down because most of the long term unemployed went on Social Security Disability. All the remaining jobs that were created were in the waiters or bartenders category. In the category of jobs that can support a family, US has created none since the year 2000. Job growth has come through a series of asset bubbles since the last 25 years and those jobs are given back as soon as the bubble bursts.
14
@Rahul: to be accurate…they went on FAKE SS disability, as it is not a 'disability" to be unemployed no matter how wretched.
The phony "system" lets people claim unverifiable issues like bad backs, sore necks, "social anxiety" and thousands of other bogus things to get SSDI, which is very generous.
Being "disabled" also gets you special treatment for Section 8 housing and other benefits!
Studies show that 2 out of 3 people on SSDI are not really disabled, but have "gamed the system".
Doubt me? stay up late tonight, and watch the TV infomercials with law firms claiming they can get you "a benefit check!' for "hundreds of new conditions!"
It's a whole cottage industry designed to put healthy people on disability….which is draining the SS system, which was NEVER DESIGNED to support healthy adults for a lifetime.
1
If you want to solve a mystery then look at all of the data, not just a few prominent facts. In this case look at total compensation, not wages. What you will see is that wages barely rose but total compensation fell significantly with the gradual loss of benefits and pensions to a large fraction of the workforce.
This was partly the result of Reagan's successful assault on unions, and partly a result of businesses cost-shifting various parts of their compensation packages to increase profits instead of workforce stability. Meanwhile, The Reagan administration pushed tax cuts instead of social programs. $$ for guns, planes, ships and missiles, but not for workers and families. This has been the pattern of every Republican Administration since. Profits and wealth for the wealthy, stagnent compensation for the rest. Mystery solved.
28
Median male wages have not grown in some 50 years! This is WAY bigger than comparisons to 2000. This is an inter-generational problem, that the elites have little to no incentive to fix.
12
Multinational companies have outsize political power and have gamed the system by changing the laws to benefit their owners and executives. Plus we have a technological revolution that diminishes the need for many jobs and that also allows for replacing workers in one country with those in another. The only way out may end up being a “we’re not gonna take it” moment unless government starts working for the majority of their citizens rather than for the big money of their powerful donors.
11
It’s not a mistery: people are not jobless, they either don’t work at all or work multiple, underpaid jobs in a gig economy to make ends meet. Many have also simply used up their unemployement benefits and are not counted anymore.
16
There is no single smoking gun to explain the economic wage malaise that is gripping the advanced economies of North America and Europe. Some factors that come readily to mind are:
1) A global workforce that has displaced more expensive American and European workers and makes it simple for multinational corporations to move production and manufacturing jobs to the lowest bidder anywhere in the world is deflating wages here.
3) The rise of machine learning will continue to eliminate human labor. Eventually self driving cars will eliminate the need for taxi, bus, and Uber drivers.
4) The next wave of machine learning is already beginning to displace high paying white collar analyst jobs.
Automation is a long term threat to our capitalist system since it is dependent on a robust consumer market with disposable income. Government will be forced to tax private businesses and redistribute the wealth to those whose jobs have been impacted.
21
It’s not a mystery. It’s the loss of unions and collective worker power as the owners of tech and traditional companies have gained in compensation and political power to tip the scales in their favor against workers. No worker orders the uncertainty and low wages and no benefits of the gig economy.
13
Much of the mystery is caused by the persistence of old ways of working in the face of new technology enabled opportunities. Traditional organizations cannot improve productivity while stuck in old models of hierarchy and outdated models of manager/worker roles.
To get big improvements in productivity, organizations need to embrace big changes in their business models and modernize their out-dated attitudes.
Otherwise they'll be disrupted into extinction.
1
@steve
The issue isn't productivity. Workers have contributed to increased productivity since the 1980s but haven't shared financially in the rewards of that productivity. As others have noted this started with the Reagan administration and has become dogma for the republicans and the top 10%. A good example is the recent decision by Amazon to pay $15 an hour but cutting benefits. The republicans and the republican Supreme Court that pulled Citizens United out of whole cloth, voided the Voting Rights Act and killed union dues, along with the top 10%, are just keeping the working class down. It can't last. It has already forced people into the arms of trump. Unless we restore fairness in the system we risk it all blowing up in our faces.
Regarding the article, I don't believe the numbers. Many people may be employed but they are not financially fully employed and are not living satisfied working lives.
2
At the heart of wage stagnation is the ethos of using the workforce as a disposable commodity. We don't invest in schools, businesses cut down on training, and at some firms lateral moves are possible, but promotions are granted only to external applicants. This keeps middle management wages low, but also cheapens their quality, as the best workers get disillusioned and leave.
If this trend continues, America will experience a brain drain similar to other former world leaders. Wage stagnation, underfunded public schools, astronomical university costs, independent press closures, and the steady concentration of wealth into fewer hands. This is how we slide toward third world status.
34
Since perhaps 80% of our economy is driven by consumer spending, an obvious solution is to get more income to all consumers, not just the top 10%. But employers are not going to increase wages voluntarily, even though in a macro sense it would benefit them as more buyers bought more of their manufactured goods.
Instead workers need more bargaining power. That means stronger unions with collective bargaining power. It means revoking right to work (i.e. for less) laws. And a higher minimum wage. And maybe making the Federal Government the employer of last resort, as advocated by MMT economist such as Stephanie Kelton. And niversal healthcare not tied to employers.
The steady hollowing out of the American middle class is not going to be reversed by free market forces without sensible regulation of capitalism.
38
The better question: Can you with your wages today buy better and bigger things than you did back in 2001?
Technology is better, homes bigger and more affordable, cars better made with more features. I’d argue that very few would prefer to live in the past when wage growth might have been higher, but what you were able to buy was overall poorer products and services than we have today. Capitalism works and continues to push for those better products and services we all take for granted now.
4
Easy enough to do in retrospect. But would you accept even less wage growth, greater inequality, etc., in the future if it entailed better products and services? Also, let's be honest here: the "better" applies to consumer technology (phones, etc). Does it apply to better "service"? Not sure of that one. Plus, did anyone 20 years ago actually want the current crop of consumer technologies that "we all take for granted now"? I mean, It's great that I can respond to your comment on a hand-held device in near-real time, but is this what really matters? I can easily imagine a better world without all of this consumer tech but with better paying, more secure employment that allows people more time and leisure to spend with friends and family, pursuing higher aspirations than the latest iPhone.
10
@Shay This is a bizarre take. Essentially you are asking whether material goods have improved since 2001. Of course they have. You are wrong, though, when you assert people can buy bigger and better homes for less—they cannot. Many parts of the country have an affordable housing problem. You cannot measure economic well-being by the cost of shiny gadgets.
3
keith,my phone allows me instant and cheap communication with family and friends all over the world so your comment befuddles me
“So why has wage growth slowed since 2001, across many different measures, when unemployment is so low?”
Because Republicans have worked overtime for the last 18 years to accomplish exactly that. People need to understand: crushing the lower and middle class and vastly enriching the already wealthy is the core of Republican economic policy. This is “Mission Accomplished” for the GOP.
64
This is a trend that's been going on for decades.
Productivity has increased steadily since 1948 right up until today. For 25 years, wages increased along with productivity. In the early-1970s, while productivity continued to increase (up 140%) today, wages stagnated (up only 10%).
Where did the extra profits go? Into the pockets of the wealthy. In 1975, the average CEO earned 30X what the average worker earned. Today, they earn 270X move. The richest 1% owns 38% of the wealth. Marie Antoinette would have been impressed.
The donor class can afford to share with their employees. They're rich because of the people who work for them. They don't need the vast fortunes that they accumulate, but greed is a powerful driver.
48
Spot on! Mid-level managers who are hiring would like to be able offer higher wages. But with gains needing to go to stockholders and overcompensated CEOs, there is limited money in the budget for wage increases.
I found it interesting to read recently in NYTimes about how Sears used to treat their employees. What a contrast with so many corporations today!
18
The Republican tax cut surely doesn’t help wage growth for 2018. One would think corporations would pass along some of this windfall to its workers, but instead it was used to increase dividends and stock buybacks. This increased their stock prices but not their employees’ wages.
20
As long as companies care more about their stock price and compensating the top leaders than motivating the rank and file worker, wage growth will stagnate. They are keeping wages low, hiring younger workers who will get paid less, bringing more women into the work force who are paid less, cutting costs at every turn in pursuit of the stock growth demanded by institutional investors.
17
One other factor that I think is missing is the shifting views of the durability of employment. Both employers and workers have moved from seeing full-time work as potentially a life-long engagement to viewing full-time work as a job that is happening right now.
Workers used to have an expectation that their wages would increase annually, and the longer they stayed in a job the more their earnings would increase. Now, when firms downsize at the drop of a hat just to fulfill the profit fantasies of investors, and workers can expect to work for many companies before they turn 40, two reliable markers for wage level averages disappear.
First, since so few firms have long-time employees it becomes impossible for workers to advocate based on wages of workers in competitively based firms: eg mail clerks at Comcast can't demand a wage raise because they make less than mail clerks at other major firms. There is no norm. The workers are truly in a fight for themselves at every step of the way against Goliaths who really could care less if they stay or go.
Second, as workers leave one job to start at another their wage history does not follow them. If a worker loses a job where he/she is making 60k, the next employer of that worker has no obligation to recognize the wage status of that worker. Again, the worker is powerless in this situation and wages can easily be kept down without the employers seeming cruel.
It's all about profits, not a healthy citizenry.
27
I think that there is a looming economic crisis coming that will force America to move away from "free market" capitalism that conservative republicans have engineered. Corporations are merging at record levels; reducing competition, eliminating redundant jobs and moving manufacturing to places like China and India.
I honesty thing that the solution will be to tax corporate earnings and to redistribute this money to people whose jobs have been impacted. If something isn't done to redistribute the wealth, they risk facing widespread public unrest.
5
@rick: my friend was making $65,000 a year as a web designer and marketing specialist for local public TV/radio stations when she got cancer and had to go out on long-term disability.
They replaced her with a student intern for $10 an hour, no benefits.
That's just one example, but I see similar things happen ALL THE TIME.
1
Thoughtful analysis and great data. Please consider looking at one more thing, which would capture some of the other comments: total income growth including dividends and capital gains. Growth in corporate income is going to shareholders not workers.
14
Where are the statistics on the average length of tenure for a typical American worker? The "disruption" economy means people are starting over, over and over, in different jobs and often different careers. Try keeping your wages on an upward trajectory with that kind of career path. Also it's been widely reported that the $28/hr manufacturing job that gets shipped to Mexico or China becomes, for the American worker, a $14/hr job in non-union states or some other lower paying sector. Seems like the migration of jobs from manufacturing to service also a factor. Come on, someone smarter than me has to be studying the fact that most private sector employees have the luxury of feeling like they can work at their company their whole career. The lack of increase in productivity? Maybe because everybody has to be out there on Indeed looking for the next gig.
16
@Marguerite Sirrine Correction: ..."do NOT have the luxury of feeling like they can work at their company their whole career."
1
There is no mystery. For 50 years, the right has been legislating the erosion of workers' rights. It passed laws allowing corporations to plunder their assets in order to take money from employees and give to their shareholders. Right-to-work states have eroding workers ability to fight for fair wages. Reducing taxes for the rich, enabling them to privatize their businesses rather than upgrade employee benefits. Giving the banks permission to gamble with their depositors money rather than their own, and the list goes on and on.
19
@katherinekovach Exactly. I have always said that the Kochs of the world want to take us back to the 80s. The 1880s. They don't even care how big the pie is, as long as they continue to have more of it.
Why is it mysterious? Anyone can see that the gains in productivity are going to shareholders and upper management. They have for a generation. It’s not complicated.
30
If productivity grows due to investment in faster systems, implementation of greater efficiencies and streamlined management, how do you justify any of the gains going to labor? After all, the day is still only 24 hours long.
2
@From Where I Sit, Well, if the employees, who are presumably doing "work" were considered shareholders and paid dividends like management (note how Amazon has treated its employees by taking their profit-sharing away), would you feel any differently about the role of workers?
4
The mystery may be how to account for the relative impact of each of the factors but from the perspective of non-owners there is no mystery: the only factor mentioned that we the people have control over is harnessing the power of our labor. Workforce innovations have brought us flexible contract work rather than new flexible forms of labor organization. We seem to accept that this new arrangement will deliver prosperity in the same way that the solid wage and benefits packages won in union contracts have in the past.
7
well, these mega companies are paying out wages. they are paying out dividends instead.
5
You missed the most obvious, #1, cause of the stagnation of wages. Larger companies are not putting their profits toward their workforce. I don't even think they consider employees an asset worth investing in, anymore. Profits are funneled directly to executives and share holders. This is the #1 priority and if there's a few coins left, throw a bone to a few employees. Add a few paragraphs to your piece, comparing these payouts and you will find the answer.
61
Actually the employment rate, that is number employed over employment-age people (FRED:LREM64TTUSM156S for age 15-64),does not look like the late 90's. It is below the level of 2000 and still going up steadily, not flattening as it did in the late 90's. This indicates pretty clearly that there are still more who are not working now that can be hired. The standard measure of unemployment (U-3) is just not doing the job.
13
@skeptonomist. Exactly so. I’m not working at the age of 57. I can afford to turn down all kinds of jobs where companies make it clear that they’re absolutely desperate for a reliable someone with skills whom they can abuse. Not going to happen. Even my cohort in less fortunate circumstances is worn out from abusive work practices of the past ten years. So we do pick up work when we must and live frugally, so there’s spending that is not happening. Spending that could have boosted actual economy, who cares what the Wall St casino does. Better to have dignity and little, than no dignity and still very little.
3
There are also two other factors you did not mention - one is international competition for cheap labour - if people in the US won't work for low wages someone will somewhere. Before the market was global, low unemployment drove up wages. Now it just drives jobs offshore. The other factor is contract employees - since the last recession many workers became small business owners, contractors or consultants, which may or may have not increased their wages. The loss of collective bargaining has decreased the power of all workers and brought all wages down.
25
I retired when my employer began expecting me to do what had previously been the work of four people. With one employee in that position, they now say they are fully staffed. My employer had quite a bit of turnover before they found someone who was willing to work that hard for the new, "right sized" rate of pay--lower than mine.
Voila! No unfilled positions = no unemployment. Of course productivity is down, because even the busiest worker bee cannot do as much as a team of four.
38
Individual productivity thus increases, and the share of profits going to management is increased along with it.
10
@Aileen Curfman. I did the same thing.
3
The 2008 recession changed expectation and mindsets for both employees and employers in an abrupt way.
Gradual change towards a better economy is not going to reset expectations about wages as quickly as a calamitous event.
We are seeing some evidence of wage growth starting and we are also seeing more people with jobs quit and take new ones. It will take time, though of course another recession can come around and derail the gradual changes we are finally seeing.
7
@NH. I think that is the likely scenario. We’ll see a recession before wage gains.
4
When you factor in housing prices, wage growth is miles behind where it was in 2001.
"... productivity is not growing as quickly..." There are two theories of price, the cost to produce, and what the market will bear. The former supports this statement, but the latter does not. According to the latter, if you need to pay labor more and you cannot raise the price of what you sell, you must settle for less profit.
Labor has less bargaining power because it is not organized, and management is organized. Unions should exist as a countervailing force to management, but they have been mostly marginalized. The corporate talking points have convinced many people to turn against them.
16
Oh. My. God. As an old person who lived through the transition of American economic theory from the odd concept that workers below the upper admin level should share a company's profits with adequate/appropriate wages and benefits, to the current genius idea that employees are an easily replaceable cost center. The genesis: Milton Friedman's genius idea that a corporation's primary function is to return equity to investors. The permanent tug-of-war between management and labor is ever with us, but when owners/management eradicate the power of labor, wages fall and/or stagnate. The Powell memo encouraged big business to aggregate its power as a block to organized labor. That worked. One step at a time, labor.....most significantly unions.. eroded. Productivity? The current corporate model, focused on quarterly earnings, does not invest in the technology, the training, the infrastructure which increases productivity. The money goes to the very top. How do you spell stock buybacks, for one example.
The result of Oxfam's 2017 survey lamenting that 82% of worldwide increased wealth for the year went to the top 1% tells the story. Took 4 decades, but this result is by design. Hilariously, Charles Koch is now concerned about wealth disparity.........which he's labored mightily and brilliantly to create. Nothing on the horizon tells me this is gonna end soon.....or well.
71
Years ago I thought it would be a good idea to go back and get my MBA. Maybe I was naive, but I was shocked at how Friedman's theory was taken by so many as gospel, with little critical evaluation. It was often parroted as if it was some immutable, physical law. Perhaps it was because the whole economic discipline was taught with little to no examination of underlying moral or political philosophies. I shudder now to think of the disservice done to students, and now realize the value of my prior liberal arts training even more.
5
@Mary Stromquist. Don’t tell me Koch has realized they’ve killed the middle class goose that laid all his golden eggs...
2
That of course ignores the fact that more and more working hours are used to consume distractions. Adjusted for that, the real salaries (and productivity) have increased... as has the voluntary undisclosed unemployment
https://perkurowski.blogspot.com/2017/11/we-need-to-restate-productivity...
Unemployment does not include people ages 55 to 64. I assume the determination of slack compares apples-to-apples, i.e. unemployment (of prime working age, 25 - 54 year olds) to the adult population (25 to 54) numbers.
The group 55 to 64 could expect to be at the top of their earnings. This is missing from the current analysis and the government numbers. I can only cite anecdotal evidence; however, my impression is that there are a lot of professionals 55 to 64 that are unemployed. Hence, wage growth decreases in the aggregate.
15
"Short-termism"--cutting investments and expenses in order to maximize profits and "shareholder value" in each and every quarter--now dominates the thinking of publicly-owned corporations. I submit that this is the best short explanation for the failure of wages to rise.
10
Lots of interesting economic theories on display here. I am going with good old-fashioned greed. Remember "Greed is Good". G-R-E-E-D. Our current captains of industry and services now make about 450 times what the average worker makes whilst driving their companies into the ground. What type of 'golden parachute" did the latest GE clown CEO depart with. Spare me the "Das Kapital" screed and follow "Das Greed".
23
If you find a way to get 100 people to do the job of 550 people, and take the pay of 450 of those people for yourself, our system says this result is optimal. Think about that.
14
Finding a job nowadays, much less a decent one, is nothing like it was back in 2000. Employers moaning and whining about low unemployment still ignore applicants who don’t have the most prestigious credentials, demand years of prior experience for entry level jobs, and leave positions open for months and even years. Age, race, gender, and pregnancy discrimination are worse than ever. If you apply for 1000 jobs you’re well qualified for, you’d be lucky nowadays to get one interview.
Economists, the Federal Reserve, and all the supposed experts are so completely out of touch with ordinary Americans. They just cluelessly point to their statistics and business surveys. When the numbers don’t correspond to people’s real life experiences, you know the unemployment figures are nothing but lies.
48
Wage growth among professional pilots is skyrocketing. It will never be back to where it was before 9-11 but it is rapidly increasing. At an ultra low cost carrier such as Spirit, a Captain can easily make $300,000/yr. Delta is at the top. They are killing it. Fewer people want to get into the business even with the potential to make a good wage. Starting pay in China for a qualified pilot is $320,000. Housing, healthcare, car with driver, and tax advantage on top of that. One problem an expat has is exporting their money. You are only allowed to transfer $20,000 a month out of the country.
Yes it’s a very hard job.
2
@DA - And it costs about $100,000 to become qualified to make $300,000/yr after about 10 years of flying. Those are certainly not starting salaries you mention.
13
The compromise Reagan tax reform which was written with the help of a Democratic Congress taxed Capital gains and dividends at the same rate as wages. Under Clinton and Bush both Cap gains and dividend taxes were reduced far below the rate for wages. Trump has doubled down on this by cutting corporate taxes which now flow through to share holders as capital gains and dividends.
The Republican's policy of cutting taxes on passive income at the expense of wages is a huge incentive for companies to avoid paying wages. Not surprisingly they are. The reason bonuses were paid last year when the tax cut was passed instead of wages going up is it was deductible at a higher tax rate for the corporations. The incentive not to pay bonuses and increased wages has gone up with corporate tax cuts not down.
24
I have noticed something very odd in the employment market that defies explanation. I see the same jobs advertised on Indeed, week after week after week, and sometimes for months. But, then, I noticed on another alternative site an advertisement for the same job with the statement being made that "they receive so many applications for the position, the prospective employer will only respond to those fully qualified for the position."
There must be some undisclosed benefit for prospective employers to engage in this type of behavior but it is not clear what this benefit is. And, if these same firms are truly in need of a full time employee to do the work, then who in their organization is now actually doing all of this extra work, week after week, and month after month?
11
@David Lockmiller Motive is data collection, for various purposes. There is no job there.
8
@David Lockmiller
This is a great point. I think a lot of people miss how easy it is for corporate America to cook the books on open jobs to push their agenda for ever more government spending training their prospective employees and/or more immigration.
5
Unfilled positions save money.
Das Kapital 101: as the means of production become relatively larger when compared with living labor in the production of good and services, the cost of each good and service tends to become cheaper including those that compose the means of subsistence of workers. These trends play across countries with the increased interconnection of economies. Coffee, avocados, cell phones, cars, and other items related to subsistence are made somewhere else- just to give an example of articles of consumption included in the basket. China the second largest economy exports many of those relatively cheap subsistence goods consumed by regular workers. Exceptions are notable such as education and health care, two of the most expensive items of consumption- which can’t be directly imported from cheaper markets.
However, this also contains a description of a bigger problem: stagnation and its concomitant low investment in technologies and machines in general conducive to increase productivity given that these may not traduce in greater profits immediately. Low wages suffice under those conditions to keep profits up. Eventually that will change because less productive players will be left out. That will become evident though in the next crisis.
6
My feeling is that wage growth rates have slowed 'because they can'. Wages are growing slower than might be expected because the point of balance between labor and capital has fundamentally shifted, through a number of factors. Systematic attacks on worker organizing ability and bargaining power has eroded that 'level-setting' function that used to be performed by unions in their wage negotiations. Consolidation of industries into a few very large corporate entities has reduced the number of bidders for labor on the labor market, leading to a 'price leadership' model where it is in the interest of every labor bidder to refrain from increasing the overall market levels. We've seen this in the increasing use of 'non-compete' clause contracts, and the explicit illegal wage-fixing arrangements that have been uncovered in some industries. 'No-poach' agreements are a restraint on wages, as well as worker mobility which would free up the wage market. Monopsonl is a factor in many industries. Automation has reduced overall demand for many kinds of labor, and automation has also reduced dramatically the labor market for certain skill levels. When was the last time you dealt with a human bank teller? Self-checkout at the grocery, and coming soon to a fast-food near you - order-it-yourself kiosks. All reduce the overall demand for labor, setting the bottom lower and pulling down all wages above as well. All these things will not be fixed by 'normal markets', but need regulation.
18
There was no unemployment and no wage growth for most of human history. The real mystery is why there is wage growth, not why there isn’t. The best explanation is technology—consistent wage growth started happening in the industrial revolution because new technologies made jobs much more productive. In 2000-01, the IT revolution was also revolutionizing jobs, but there have not been as many innovations that affect how most people do their jobs in recent years. We should only expect major wage growth if there is another spurt of revolutionary technological improvement such as in AI.
1
@G.K, if tech drives wage growth then why does your 2000 IT boom not show results? No reason to expect growth under the AI regime.
3
@G.K. Perhaps a better explanation is that wage growth (and unemployment) started with the unregulated rise of capitalism.
1
Suppose wages growth are flat which drives the operating costs lower/flat for companies and making higher profits. So higher dividends for investors, the rich get richer. Thus the income gap growth wider, and middle income group are bearing lower standard of living such as paying higher rents and housing prices. So less affordable commodity available such as housing which will eventually price out the average consumers. Usually the demand will be retreated, hurting the company profits and monitor its operating costs closely. Thus both commodity and wage growth will be flatted.
But the surprising element is housing prices sustain itself quite well during the economy growth cycle due to scare housing resource. So that's the pain on growing economy and eventually lower living standard for middle and lower income class in long term view, unless both union jobs get better wages for its members and supply of housing grow faster. That's the only vision I have to address this crisis.
2
For jobs with the globally active companies we are competing for the pay increases with the peer groups all over the world. As an example, my department's salary budget is up by 2.5% for 2019. It's a puny number - but similar group within my company that is in Germany gets only 1.7%. Team in India gets 11%, but with the extent of depreciation of the rupee v. USD, they will actually be cheaper for the corporate accountants next year than they are now. I am sure our U.S. top managers are well aware that people are unhappy with their raises - but are fearful that pushing for a bigger salary budget would cause problems for the American jobs mid- to longer term. Hard to grow pay faster than the global average - and economies elsewhere are in worse shape than here...
11
@cobbler: so Alan Blinder got it right-- 12 years ago!!
https://www.foreignaffairs.com/articles/2006-03-01/offshoring-next-indus....
1
So why the need to import immigrant workers? Let Indian engineers stay in India, and raise their salaries there, build infastructure, and make corporations start investing in and training Americans.
4
"A third hypothesis is that weaker wage growth is connected to inequality and lower labor bargaining power." Um, you think? There are massive, ever-growing deregulated corporations that act on behalf of wealthy execs rather than the greater workforce.
For example, I did freelance writing for Google, who outsourced to a huge global content corp. (Moravia), who then outsourced to freelancers, offering non-negotiable rates that averaged to barely $10/hour.
I've now submitted 2 op-eds to NYT about the lurking issues in our supposedly robust economy.
19
"A third hypothesis is that weaker wage growth is connected to inequality and lower labor bargaining power." Um, yeah. Deregulated corporations growing larger by the minute act on behalf of the wealthy executives and major shareholders rather than the workforce.
For an IRL example: I freelance wrote for Google. Google outsourced to a huge global content corporation (Moravia) who then outsourced to freelancers, paying them a non-negotiable rate that averaged to about $10/hour (or maybe less).
I've submitted 2 op-eds to NYT about the subject of growing wage gaps in America.
5
Most people who have survived in the post recession economy over this past decade have been made to feel lucky to have a job. And regardless of the unemployment numbers, it is implied by many employers that if you don't want to do the job for what they are willing to pay, there is always someone who will. Most companies have a sink or swim culture nowadays. Training and mentoring are minimal. There are mergers in many industries limiting job choices for people with years of experience in specialized jobs.
A major factor rarely spoken about these days are the many businesses contracting more and more work to sub contractors or freelancers who have no employee rights or benefits. Freelancers/contractors experience frequent wage theft and delayed payments. The competitive nature of freelancing means we are constantly competing against each other for gigs, further depressing wages by lowering our own rates out of desperation. Wage theft, especially in the restaurant industry and low wage/skilled jobs in general is getting out of control. The people most reliant on jobs with low wages are the most vulnerable workers in our economy.
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@wcdessertgirl THANK YOU! I wish I could recommend your comment tenfold!
So it's not because of inflation or the other things mentioned. Ok, so let's follow the trail of bread crumbs and ask some questions. Who decides employee wages? Answer: companies, corporations, employers. Do employers have money to raise wages right now? Answer: yes they do. They just got a huge chunk of money with the Trump tax cuts. Next question, what did companies decide to do with the huge amount of money they got from the tax cuts? Did they raise wages? Answer: No, according to a previous New York Times article, a huge percentage of companies decided to buy back stock with the money they got from tax cuts.
Conclusion: So why no wage growth? Maybe it is largely down to choices made by companies. Companies have a lot of extra cash after tax cuts, but their priority was to buy back stock instead of raising wages. My opinion: maybe companies should rethink where their priorities lie.
20
This article is good so far as it goes. Some further details would better elucidate the issue . One would be to divide the new jobs and the openings into two categories: good jobs paying say $20 or $25 per hour or more and the poor jobs paying less than that.
I would really like to see a graph of employment at real wages greater than $20 or $25 percentage of the employed work force. I suspect we have a declining percentage of higher wage jobs.
I recall a news story some time ago in which a manufacturer said he wanted to hire a 100 more machinists but couldn’t find the workers – at $14/hr! Yes, its true you won’t find many machinists willing to work for $14/hr. So, a lot of the openings are suspect as being low ball offers. Low ball offers also explain how the IT industry justifies importing IT staff from other countries saying that it can't find Americans (who will accept lower than standard IT industry wage offers).
Another factor that needs to be explored in an article like this is the variations between job openings and unemployment between urban and rural settings. The hypothesis would be that the openings are primarily in urban areas and the unemployment is in the rural areas. It might also be helpful to distinguish between coastal areas and interior areas regarding job openings and unemployment.
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People are quitting their jobs now at record rates like we have never seen before and moving up the pay-scale ladder quicker... the average American now holds 10 jobs before the age of 40. This is not how it used to be in 2001. The theory could be that people are not waiting around for a raise, but that the economy is so good, they are simply quitting to take other jobs that offer them larger wage jumps.
5
Agree. Especially when wages possibly do start increasing. Suddenly all the new hires are making more than you. Quit, find a new job and suddenly you are the highest paid. Happens with every cycle in the oil industry.
1
The article seeks to explain why nominal wage growth was 1.3% less in 2018 than 2001. Try this: prior-year inflation was also exactly 1.3% less, and prior 5-year inflation was 1.16% less. Thus, if workers were using recent inflation as a benchmark in negotiations, or firms were using recent inflation for planning, then the entire difference is explained by inflation.
"One measure that accounts for both the unemployed and nonparticipants is the employment-to-population ratio. Unlike the unemployment rate, it has not returned to its 2001 level. But when adjusted to account for demographic changes, it shows a tight relationship with wage growth. This is what we might expect to see if slack not captured by the unemployment rate were still a drag on earnings."
This is the kind of analysis that keeps me subscribing. Simple supply and demand can explain this. In a tight labor market discouraged workers with large gaps or less than ideal skills are more likely to be hired. That is where this extra reservoir of labor and slack is coming from but wages will increase once the participation rate is higher.
3
@PictureBook: which is why we must use any force necessary to push back "caravans " of illegal aliens and also deport all illegals currently residing in the USA.
1
FEAR is the Key.
(To borrow from Alastair MacLean)
2
To paraphrase: one hypothesis to explain the recent period of lower wage growth in labor markets is that the "slack" in these markets is greater than that which is usually signaled by such full employment rates (100% - 3.7% = 96.3% employment rate). Slack in these labor markets being defined as: "essentially the shortfall between the amount of work the economy could be supporting and the amount it actually is."
Support for the "slack" hypothesis can be found in the Fed's recent release of industrial production and capacity utilization data on Oct. 16, 2018 for the month of Sept. 2018 that shows an overall capacity utilization rate of 78.1 percent; which is "1.7 percentage points below its long-run (1972-2017) average." Thus, although capacity utilization rates of the nation's physical assets have increased of late, they still trail the longer term trend, which is additional evidence supporting the "slack" economic hypothesis, this time via under deployed capacity, or utilization of physical assets data, via the Fed.
[JJL 10/22/2018 4:38pm Greenville NC]
[JJL 10/22/2018 M 4:34pm Greenville NC]
1
The mystery is answered in the third-from last paragraph: "employer concentration;" a fancy name for an economy increasingly dominated by a few large corporations that informally collude to depress wages.
All this in a year where political mismanagement will produce a federal deficit topping the one trillion dollar mark.
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@Nubby Shober
You hit the nail on the head!
2
Slack, meaning that there’re many people still available for work (reserve capacity), would be the primary explanation. Cyclical before secular.
4
Most power is now in the hands of the corporations and individuals are weak. The rise of Right to Work laws (aka The Right to be a Slave laws) are also a possibility as union membership has fallen. Will corporations begin to hire their own armies of thugs to maintain control? I have to wonder.
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@William Geoghegan: "right to work" simply means you do not HAVE to join a union and pay dues if you don't want to.
Sorry, but forcing people to join unions is unfair and now 9tanks to SCOTUS) illegal.
The oil industry is certainly doing well, but everyone else seems worse of now than before.
The other weird thing is that the DOW hasn’t really budged from where it started in January. It looks like the lack of competition is causing the economy to become stagnant rather than actually growing. Most of the growth is just the money the government borrowed to pay for the tax cut. If you eliminate that, there is little organic growth left in most sectors.
The thing is that the money borrowed will need to be paid, America basically has a balloon mortgage and has gotten litt for it.
7
Two factors both arising from the Great Recession (and one not).
First, because of "sticky wages", instead of real wages declining by 10% to 20% in 2009-10, they stayed the same. After the recovery, they then became stuck at this higher level, and we won't see increases for some time.
Second, every worker became afraid of losing his or her job, so nobody would demand, or even seek, an increase.
Finally, there is the effect of the widespread non-compete/non-poach contracts in many industries.
Only a return of the labor union can change this dynamic.
15
Some of what I learned in Econ 201 way back in the day:
Wage increases result only with competition for workers. Competition for workers results only when there are many possible employers.
Today we see the same amount, or maybe more, of workers competing for the same amount, or maybe more, of jobs. The difference to day from "then": fewer employers, thereby less competition for workers -> less growth of wages. Compound this with far less worker strength/power, aka unions and the future looks bleak.
From a college “reunion seminar” not too long ago:
Historians, economists and sociologists will point to the period from 1945 to 1980 as being the high water mark of the American middle and working classes as well as being an aberration in America’s social and economic history. Eventually, those workers will have died off, ending living memories of a “golden age”.
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I laugh when I see the inflation numbers used regardless of who is providing them as they in no way reflect the economy consumers see every day. Matters not if you are paying tuition, buying a car, getting groceries, looking for a home, dressing a kid- or yourself, prices are substantially higher than what is quoted by anyone in any media outlet I have seen.
When the $20k pickup is not $50k, the 75¢ Cranberry Sauce is now $2 and Coke is trying to sell a 6 pack for what bought a 24 pack not long ago, the inflation is well over the numbers reported.
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@David Gregory I see this in something as mundane as yogurt. They shrink the package and keep the same price and so it looks like no inflation. Just your dollar gets you less.
25
Actually manipulation of packaging size is incorporated into the official measures of price changes. The consumer may or may not notice (and grumble about conspiracy to under-count CPI) but changes to the size of yogurt containers does make it's way into the official price index figures.
Ernie,
Interesting article. My suggestion is that in industries that are protected from import competition - medicine, construction, oil drilling, financial services, accounting etc - wage growth has been robust. Also, professions and vocations that require education and training that are also difficult to outsource or "computerize" - doctors, accountants, technical sales - are also doing fine.
But the large majority of unskilled and untrained Americans have lost their ability to demand high wages because of both imports and technology, are doing poorly. The days of making $50K bolting parts on a Chevy are gone because a machine can do it. The days of making a decent wage as a secretary or administrative assistant are also gone because we do those tasks easily on our laptops and phones.
This is also the reason that the national number of "positions vacant" exceeds the number of unemployed. By and large the unemployed are also unqualified.
10
@Robert In my own area, I've seen skilled jobs outsourced to India and the Czech Republic: specifically, app/web developers. Even a company that serves the American government HR sector, outsources to Indians.
9
I recently talked with a McDonald's multiple franchise owner who predicted that within 5 years--due to robotics--he would need only 4 workers per shift. Productivity per employee hours worked will certainly rise, but one gets the feeling these workers will feel lucky to have a job. This will exert downward pressure on wages that will perhaps be ameliorated by an increase in the minimum wage.
Stop & Shop has trained me to use their automated checkout lanes when I buy groceries (they have 5 of these in each of their Madison and Clinton, Ct. stores). See above.
Combine these technological developments with the threat of easy replacement by the reserve army of uncounted unemployed workers, and low wage gains don't seem so surprising at all.
28
@WDG Maybe we don't need owners either. They could be automated. :)
10
@WDG Interesting comment. The question for the McDonald's owner is what wages will the 4 workers/shift. McDonald's lived off minimum wage workers forever and protests any increases in the minimum wages. Where is the link between productivity/profits/qualifications and wages?
5
McDonalds and their franchise owners apparently don't look closely at the customer experience in their stores. The new kiosks are confusing, slow and and buggy. There is now a person who has to act as "waiter" who will bring your order out to you. I don't see the efficiency in that.
Although I like to play with new tech toys as much as the next person, I avoid the kiosks like the plague and order from humans who need the job and say "Thank You".
We are operating in the high-tech innovation vertical and for us wage growth is negative. We looked at this in detail and hit the following paradox: even though wages for deep technical skills at Google, Apple, Amazon, etc. are rising, our customers are NOT willing to pay more for services rendered, or products designed. And the reason we find is that we are competing with the growing capability of the tech sectors in Asia. So, Google may be able to pay an SRE $250k a year, when we are competing with a Chinese/Indian SI we need to compete with $25k/year resources. Our interpretation of this problem is some portion employer concentration, and portion value creation source. Google monetizes its value-add from marketing dollars, of which there are many in advanced economies. We, on the other hand, need to monetize the same value-add (the SRE example) from P&L segments that are directly related to production improvements. The budgets are smaller, and the validation test more stringent. End result, wage erosion as we are being pulled down by Asian salary levels.
7
@Innovator sitting here in Germany, currently. I am in agreement with your assessment. Certainly Germany is a fine example of the social compact between labor ,business and government keeping wages low in order to compete successfully on a world scale with Asia. The difference it seems is that rather than a compact, there is concentration driving down wages in the USA, still in response to Asian wage pressure. I’d ask the author whether you considered this question in that light.
8
Although many possibilities are offered, the punchline is at the end of this article: so few firms dominate many American industries that they don't need to compete for workers by offering higher wages than their competitor companies. There are no--or very few--competitor companies in some industries. Who does Amazon compete with? Apple? (Amazon has recently brought its wages up to the recommended minimum of $15/hr. only after some prompting from Bernie Sanders.) The big banks? The Koch Brothers empire? Nestle Waters?
And that shows that corporations--with their ever-increasing political power--dictate American wages as they dictate so many aspects of our lives.
More than even stagnant wages, the mystery is why we have stopped monitoring and preventing monopolies in America. Corporations now set wages i
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@Anima
Note: Amazon did give a wage increase but it eliminated its monthly bonus and stock grants. Their employees are actually making less!
2
The jobs in my area are at
the bottom of the pay scale— drivers, movers of boxes on shelves, home health aides, and companions to the disabled.
Excellent analysis in article. It is the combination of factors listed of capitalists seeking to cut labor income that has resulted in today's low wage growth. Unions are legally and illegally suppressed; even mature strong unions pressured into wage give backs. Monopoly power is much stronger today than 40 years ago in all industries. Import competition is much stronger keeping manufacturing wages down. Periods of strong economic growth and rising real wages are the exception to our economic history rather than the norm. As a socialist, I suggest that monopoly capitalism we have today will never deliver good paying jobs to the many but rather channel most of its profits and revenues to the elite few. Jeff Bezos of Amazon worth $150 billion with hundreds of thousands of poorly paid wagehouse workers is example #1.
18
One thing economists most often tend to forget about is that economies are not machine that follow the rules of logic. As they've discovered regarding individual decision-making, societies also react to the market forces with collective decisions (both from the legal and the ideological stand-point) that are not based on facts, but on values.
The fact that society has been idealizing the rich, and giving so much value to capital and so little to work and human effort is one of the reasons the population has been accepting lower and lower salaries as their due. Anyone working full time in a legal job in a developed country should be able to afford shelter, food, clothing, and health care. Society should be outraged at any company that offered wages that would not allow an individual the basic needs of life, but instead, that is the norm, and people make a big deal when companies paying salaries that keep their employees on food stamps raise salaries $1 an hour. We are all paying for that deficit between the salary and the needs of individuals, through social programs, higher healthcare costs when people cannot afford to pay their bills, increased criminality, and, worst of all, a new generation in which a large percentage of children are being raise in substandard conditions that won't allow for their proper intellectual development, hence creating a new generation completely unprepared for the cognitive demands of the jobs of the future.
31
I am no economist, but my sense is that the tools of conventional analysis are no longer enough; there are so many new factors -- political, social, economic -- at work.
One factor surely is an economy controlled deeply by a group of plutocrats who are making the rules behind the scene, much as was the case at the beginning of the Progressive Era.
But, surely, a global economy is also building a new set of norms, formal or informal.
13
The job market is a market just like any other. It is still driven by human choices. In the same way that racists and bigots have become emboldened by the winking endorsement of trump, so corporations have become synchronously influenced to push wages downward. Reducing wages for a heavily service oriented economy probably has a strong influence on profits. Corporations are essentially super wealthy people. They always think that they are paying too much for labor. That attitude is corroborated by the current political climate and that, in effect, makes it true.
5
So where is all the wealth generated in the Obama/Trump bull market going? As this paper shows, it is not to wage earners. Look at income distribution, its going to the non wage-earners at the top, creating ever more unequal income distribution. Could a plutocratic ethic among the owners and managers be operating? I call it unmitigated Capitalism, or just plain greed greed.
8
Correction: Go the dates for the graphs wrong but the data still supports the argument that it is a little early to be too concerned about wages in this cycle. The longer run concerns me more.
1
Massive profits for a few CEOs, a complicit union-busting Congress and a gig economy leave many at the mercy of low-wage jobs. Not that hard to understand.
18
One obvious reason for lagging wages not mentioned is the explosion of service sector jobs. We have Chick-fil-A's and Starbucks popping up all over our growing sprawl as well as warehouses and delivery jobs to fulfill the demand from online shopping. When I was young these jobs were considered temporary until you graduated HS or got your degree/technical training. Now regular people must work two or three of these low wage, dead end jobs just to scrape by. With tuition costs outpacing inflation for years, I don't see this downward wage trend reversing anytime soon.
10
The idea that wages are at all connected to productivity is laughable. Productivity has significantly increased since 1980, wages have remained stagnant for all but those at the top. The wealth generated by American workers is reserved for shareholders and shareholders alone. The rest of us are left with the crumbs and lots of debt for gaining skills that companies utilize but do not value. I think it is disingenuous for the NY Times and economists to pretend like there's some huge mystery here. The answer is greed unchecked by norms that used to exist. Companies used to value workers and treat them as a long-term investment. Now we are all disposable, which is exactly how capital wants it to be. And I mean disposable in a quite literal sense, corporations do not care if their employees die for lack of healthcare, shelter, food, etc. In fact they bet on it, taking out life insurance policies on their employees where they benefit if you die. Human beings are now a disposable commodity. Economic models will not capture this basic cultural reality, but it is what is driving this trend.
160
I would love to see the workers wage growth over the last 30 years in comparison to the wage growth of the CEO's and top executives of the companies and organizations employing Americans. And throw in a chart of corporations spending on stock buybacks to employee wage growth while your at it.
70
@Heidi, here's an examination of the quintiles (including the top 5% earners) using the 2017 Income & Poverty report by the Census Bureau: https://www.advisorperspectives.com/dshort/updates/2018/10/16/u-s-househ.... You can see that the middle quintile (which includes the median income), hasn't moved all that much since 1967....35%. Note this is a different source of data than the author uses.
1
One more area this article didn't explore is the impact of globalization. While free trade does yield economic gains, the global marketplace also takes away the bargaining power of workers and makes U.S. workers compete internationally. The pressure to keep wages low in the U.S. is in part influenced by the ability to switch production to overseas markets.
While this is just one more pressure point on wage rates in addition to everything identified in this article, I don't see isolationism or abandoning the global marketplace as the answer. Answer question would be to explore how much of the wage stagnation is also impacted by the increasing concentration of wealth. If executive compensation had stayed at the levels in the 1980s, how much more money would have been available for production workers? Granted much of the wealth of company owners/executives is through stocks not actual wages.
5
I retired from a well-paying professional career in 2016. Went back to work part-time in the same field in 2017, but not in upper management. Pay was about half of previous salary. The place where I was working went up in smoke, so I'm looking for part-time work again. There are tons, really, tons, of job openings. Most are unskilled or low-skilled, things like retail sales, stocking, assembly, data entry. Pay is up in this area, $13.00 a Walmart, but contrary to government reports inflation is also up. Gas prices, home heating oil, food, electric, property tax, water/sewer, restaurants, all have had increases, some significant. Clothing prices seem to be cheaper, but so are the goods - poorly made imported junk. My health insurance just went up too.
On the other hand, folks I know who are still working full-time in demanding jobs in areas such as healthcare and IT, are commanding very high salaries. I see these discrepancies as additional proof that the gulf between the "haves and" have nots" is widening, and market forces have yet to make an impact. Only when the "haves" are sufficiently inconvenienced will there be any change.
28
An excellent article. I suggest that in some ways it's also useful to concentrate on the subject of power. Owners enhance the power they already have by use of politicians, and so can keep wages low.
A favorite Republican tactic in that regard is to make life hard on illegal immigrants, but NOT hard enough to reduce illegal immigration. Primarily Republican employers can then hire the illegals at low wages and sub-standard working conditions - in a few industries most workers are illegals. And that keeps wages low on citizens working too.
8
Hmmm. Perhaps it's time to stop entwining productivity gains and wage growth. Perhaps the rules of the game have changed. There are more questions than are addressed here.
What percentage of workers are in low wage service, blue collar & retail jobs? The kinds of jobs that have never had large wage gains.
How many of those jobs are part-time, and how many people work more than one job?
What do the historical trends for share prices, dividends and executive compensation look like next to wage growth for workers?
Has anyone considered that perhaps workers have been at or near peak productivity and all the gains have just gone elsewhere rather than into wage growth? Which ties back to the first sentence.
This "trend" seems deliberate and planned. Is it? And is it tied to employer concentration?
These questions, of course, are nearly all answered in other articles, in other places, by other people, but they're all treated as disparate pieces of an unsolvable puzzle. Perhaps now is a good time for economists to take a fresh look at the rules and theories they use for analysis. It just seems like weak wage growth probably isn't that much of a "mystery".
12
Another factor: stinginess of employers, especially as revenue is transferred into astronomical CEO wages, upstream (rather than downstream) participants,financial activities and political influence. Lower-paid employees have little leverage but lots of angst.
18
There has been a massive shift in corporate culture that might also account for the slow wage growth. In post-WW2 America, the corporate culture was one where workers were unionized much more, but also one where corporations felt some obligation to insure that their workers could lead a sustainable life and have money to spend on goods and services, had health care, and pensions. At some point, that culture shifted to one where maximizing profits for shareholders became the primary concern of corporations at the expense of all other considerations. As a result, wages and other benefits have been kept as low as possible so as to maximize shareholder return, and the earlier values have gone by the wayside. The low-wage more-profit culture of today has now become the norm that nobody seems to question anymore.
97
@twloughlin Corporations have never felt any obligations to their workers. It is not in their nature now and never has been. Obligations have to be externally applied to influence the natural behavior of corporations. Now that corporations have taken over the government, they have no obligations at all to act in the collective interests of the people and so they don't.
5
@twloughlin
"At some point, that culture shifted to one where maximizing profits for shareholders became the primary concern "
In USA the point was Reagan who pushed the greed philosophy and in Britain we had his friend Maggie Thatcher copy him.
Thank you for this interesting, fact-base analysis of sluggish wage growth. A couple things I observed are as follows. As the population ages, those who drop out of the economy may not re-enter at the same rates as younger workers when it picks back up again. If they do re-enter, it might be part-time. This takes higher wage earners out of the picture. Also, I believe, having worked in an office, that productivity may not be growing as robustly in part because of smart phones. Workers are more distracted, and having been through a major recession (and been burned), may not be as committed on average as they used to be. We thought working hard would payoff, and the correlation doesn't seem to be holding, especially for older workers who have seen less qualified, less committed younger workers get the promotion. Again, as population ages, you get more of this. Finally, if you see that those on the top pay little to no taxes, get hefty pay hikes, and don't seem to work all that hard, and you get hit with healthcare expense increases with meager or no wage increase, it can impact your productivity. Inequality can change a person's mindset about work, too.
11
This year my annual raise was $.74 per hour after an excellent evaluation, certification in my specialty, and included a letter about how much the company “valued and appreciated” me. Better than the $.50 raise in 2017, but not enough to cover the increase in my health insurance premium (my employer self insures), nor the $300.00 increase in my property tax (same house now 20 years old and in need of some repairs), not worth more to live in than it was last year. And certainly not to cover the myriad taxes Kentucky has added this year to everything from vet bills to tree trimming. I’ve been with the same company for twenty years and am nearing retirement, so in addition to the flat/decreasing value of my wages am frightened daily at what McConnell and his henchmen will do to social security and Medicare in the next few years. I do vote. In every election. Unfortunately living in this state it doesn’t seem to matter. Joe Yarmouth already wins Louisville, can only hope he remains.
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@Barbara Boy do I hear you. I'm in the same boat except for having been "RIFed" twice this year, and close to running out of the skimpy unemployment benefits that don't even cover my rent. And companies are CLAMORING to hire 60-somethings. (NOT).
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I can't believe this is such a mystery. Competition in a free market manner is predicated on the assumption of roughly equal influence on the issue at hand. We do not have a situation where workers and employers have roughly equal influence. Decades of declines in labor unions, influxes of millions of immigrants working for lower wages, increased use of non-compete tools, limitations on collective bargaining, increases in compensation in form of stocks (which are taxed lower) for senior level positions, and on and on. The legal landscape is shifted to benefit the weathy and the lower classes are left with less power and wage growth.
It's not that complicated! The reason it's a mystery is because the causes resemble death by a thousand cuts, which is very difficult to demonstrate in an academic setting.
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@P Childress I agree that the labor market is just that but I couldn't agree that it is a market that is free to seek its equilibrium of natural influences. The gaming of all markets has produced a system of insider trading that drastically favors corporations over people.
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@P Childress
It doesn't matter what academics can prove, since the right wing, responsible for most of what you describe, has spent the last 30 years (or more) undermining their legitimacy. Ironically, a lot of the people that have been harmed the most by the policies that have brought us here are their most faithful followers.
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@P Childress the only thing I'd add to this list of eroders of worker influence/leverage is rampant unchecked consolidation which has left fewer and fewer competitors in every industry.
It seems a little early to be too concerned about wage growth. The charts in the article only go back to 2001 when the labor market (including participation) was tighter than it is today. If you go back 30 or 40 years you see a much different picture. People were very concerned about wage growth in the early 1990s too. It changed. for the sake of the workers, I trust this will too.
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@Garrison Moore Even if we don't care about workers, the over suppression of wage growth slows economic growth. Corporations are completely driven by the obligations they have to share holders. In the relentless pursuit of pushing stock prices higher through artificial means, corporations are pushing real growth lower. The stock market is acting like a money sponge. Less money in the hands of workers means less spending. The power that corporations have acquired through legalized bribery of elected officials will prevent the market from naturally becoming more rational. At some point the bubble will pop.
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Employer concentration is certainly part of it, but I think the decline of unions is a bigger part. I work for a major airline that currently has no union work groups other than pilots. The airline industry has certainly concentrated drastically over the past two decades, due to mergers and bankruptcies. But over the past 6 years we've seen pay raises of 5%, 3%, 4%, 14.5%, 6%, and 3%. Granted, a fair chunk of this was restoring wages to where they were before we started taking pay cuts a decade-and-a-half ago in the run-up to bankruptcy. And, while I believe our current management truly cares about employees, I imagine our wages would not be quite as high as they are if the company did not have a constant (and credible) threat of unionization dangling over its head. Not to mention almost unanimous union membership among its competitors, with collective bargaining driving the industry standard for pay and benefits. That said, I think management actually enjoys messing with the competition by setting our pay higher, which causes problems for management at our rivals the next time a contract comes up for renegotiation.
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It's probably that all of the factors speculated about here have contributed to wage stagnation, from there being unexpected slack in the labor market--the official unemployment rate is very misleading; the U6 numbers that include underemployment are probably more indicative--to technological advances that didn't lead to as great productive increases as earlier ones, to the lack of unions and bargaining power.
Of all the ones mentioned, though, one that should be looked into far more deeply is the oligarchic effect of the concentration of employment into fewer and fewer firms, mentioned towards the end. Independent of lack of unionization, the consolidation of entities leading to a lack of choice of employment options really seems as if it will retard wages greatly--competition for workers, especially good ones, is simply nowhere near as fierce as it once was.
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Wages gains have been flat for almost two decades, but productivity gains have not. Data from FRED and Picketty show that the 20% gain in productivity for the period went, not to labor, but to "capital". Aka the 1%.
We'd (99%) like some of that back now. It seems disingenuous to claim that because the annual productivity gain, limited to the past single year is x, that any potential raise should be limited to x.
This claim is a bit like a GOP massive tax cut for the 1% being followed by calls for draconian cuts to the social safety net to offset declining revenue.
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@OSS Architect Right on the money. Not only does inequality impact wages, but it also impacts the overall economy growth since a large majority is consumer driven. Put more money in the hands of the bottom 80%, and they will spend more taking care of their needs and desires. This has a higher stimulating effect than giving very rich people even more money to continue to buy up assets. Housing in the Bay Area is a good example. The rich own multiple units and rent them out while controlling the politics involved with allowing higher density units. Regular people can no longer afford to buy million dollar 2 bedroom shacks, but are forced to pay high rent, thus perpetrating the problem of wealth concentration. That's money that flows to the rich in rent that might have been spent on a new car, eye glasses, dinner out, a Disney vacation, etc. Inequality is the root.
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@OSS Architect
As long as they can get away with it, they will continue doing it.
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One possibility I've not seen mentioned is that the workers now entering the workforce are of such low quality that higher wages aren't justified by their productivity. Employers are hiring because the workers are cheap and if they were more expensive, they wouldn't hire them. Thus employers may want more workers, but only workers at a certain pay-level so worker demand is highly sensitive to price (pay).
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Business has gotten smarter, just paying more does not work. Just as getting in a bidding war for say a house only makes people pay more for the same result. First if you can't get workers look at alternatives. Automation, process improvements, and being focused on those portions of your business that are the most profitable. Just hiring and paying more is stupid, some are stupid, most have learned.
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A national economy is very complex, much like the arcade game of “Whack-a-Mole”. When one factor is adjusted another rears an ugly event and seldom is there long term smooth sailing. In the face of low unemployment, this article details the real face of our current employment condition. A sidebar to this would explain why people hold multiple jobs in order to maintain their economic position in society. Financial pressures without a second source of individual income frequently short circuits maintaining a solvent lifestyle or prevents upward mobility. The additional weekly work hours reduces time for families and social organizations. And long term solvent employment for most is now a thing of the past.
Beyond the scope of this article is a discussion of corporate profits. The goal of increasing profits and additional upper management compensation means less money for wage growth for the majority of employees.
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Whatever is causing wage stagnation, there is nothing new about the phenomenon - real wages have scarcely grown since 1973:
http://www.skeptometrics.org/BLSB8.PNG
Wages grew fairly rapidly - near the pre-70's pace - for a short time in the late 90's. The rate of increase had actually turned down by 2000.
Some factors may be new and some changed since 2001, but restoring wage growth to post-WW II level will probably require several fundamental changes.
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@skeptonomist It is basically impossible, wait until AI gets going and releases many workers from low level jobs. You can't stop improvements, you can adapt to them. And with low inflation and the possibility of multiple jobs to increase your wages that will work.
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The wages in the US are already rather high compared to other advanced countries like Germany, Japan, and Canada.
It used to be that our workers had the highest levels of education and skill in the world, but now other countries have caught up with us and passed us. It is not reasonable to suppose that US wages can keep rising indefinitely under these circumstances. We will eventually become an ordinary country where people earn the same salaries as in other, similar countries.
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@Jonathan But those other countries also have much more generous social safety net and a social contract in exchange for lower wages. In the U.S. we just get the lower wages, and then the GOP is busy stripping the safety net.
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This is a very interesting take on economic data that is more broad-based than most talking-heads with narrow focus on just a couple of indicators (hello, GDP, unemployment rate, wage growth).
On gut level, we know this is true. We also know slack in labor market is far higher than what the numbers show us. What the article does not account for, is the impact of globalization to our labor market.
The rise of internet is a two-way street. It allows corporates to leverage on cheap skilled labor aboard (initially in India, but increasingly, in Eastern Europe and China). I would argue that THIS is the main reason why we don't see wage growth in skilled labor sectors as we saw in the heydays of tech boom in late 1990s.
There is also the ease of corporates in moving operations around the globe for the cheapest labor and biggest tax breaks. Individual countries (even one with as powerful an economy as US) seem incapable to counter this trend. And this is not limited to operations, but accounting gimmicks with the sole purpose of tax avoidance. Better yet (for corporates), it's totally "legal."
In totality, this allows Big Corps in extracting (more like squeezing) countries (and its denizens) for best arbitrage in some other countries. If countries are to fight back, we really need to put regulations in place. Trump might be crass, but maybe some of his crazy ideas could work to stem this tide.
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@tiddle You had me up until the part of Trump fixing this. His crazy ideas won't work, and just make things worse.
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This is an excellent article. Very unusual to see such a comprehensive analysis. Many of the people who have left the labor force have been and are willing to return, that definitely makes the unemployment statistic less than useful. Combined with the other factors, this article makes a convincing argument. Good job.
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We have the worst of both worlds now. At least in the great crash of 2007, we had great wage growth before that and if you played your cards right, and waited out the market crash you were okay.
Now when the crash comes, we will lose even more since we had amassed nothing before it.
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@Paul, If you think of it in another way, all those "gains" that you thought were amassed and lost in the pre-2007 days, are just fluke. They were paper gains that were never meant to be. Afterall, how could something grow with 15-20% annual yield to be sustaining? Well, you tell me.
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@tiddle- Thank you for your reply tiddle, you are basically right, I am splitting hairs.
I am referring to seniors like myself and others who rode the dow wave with iras, even after it crashed, we waited for the recovery and have a nice nest egg.
Adding to that big wage gains in the 1990s that were inflationary but we saved them and put them in the market and waited it out.
Now when the crash comes, the young people today had none of this and will suffer more than my generation did with low paying jobs, no wage gains, no pension, high student loan debt etc.
@Paul Both my sons will graduate from top schools with little undergraduate debt. Both will go to graduate school. Yet, I still worry that in this unstable, unequal economy, they will have a harder time supporting a family than I did.
The decline in unionization accounts for a lot of the stagnation in wages. Unions are the only mechanism for employees to exert power on the job - and gains they make in unionized workplace typically translate to gains in nonunion workplaces because employers need to compete with the union-negotiated rates to attract and retain employees.
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@Lowell Peterson But extortion is past and somewhat corrupt unions are gone from our country. Get them going overseas.
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@vulcanalex Even in the past, unions were no more corrupt than the corporations. Tit for tat doesn't solve anything.