NCPA - National Center for Policy Analysis

Stagnant Wages Due To Insecure Workers?

May 15, 1998

Earlier this year, Federal Reserve Chairman Alan Greenspan linked wage stagnation in the economy to greater worker insecurity. Now a study from the Chicago Fed has validated that assumption.

  • Economists Daniel Aaronson and Daniel Sullivan estimate that job insecurity reduced wage growth by 0.3 percentage point in the early 1990s and 0.7 percentage point in 1995.
  • Experts say that despite the strong economy, job loss is up -- with the displacement rate for workers with five or more years of tenure at 3.4 percent in 1995 compared to 2.5 percent in the recession year of 1982.
  • Personnel experts report that the newly hired and blue-collar workers are still more likely to lose their jobs than long-term and white-collar workers -- but the gap has narrowed in the 1990s.
  • Despite the tight labor market, big companies are reportedly pushing greater efficiency through restructuring and laying off workers -- a trend that may accelerate in this era of big mergers.

So the environment has some workers nervous and they are not making compensation demands at the pace they once did. This situation allows companies to continue making profits without having to raise prices -- which shows up in today's paltry inflation figures.


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