American Wages Remain Low

August 29, 2013

Americans are spending enough to keep the economy rolling, but don't expect them to splurge unless their paychecks start to grow. Four years into the economic recovery, U.S. workers' pay still isn't even keeping up with inflation. Labor Department data show the average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, says the Wall Street Journal.

Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation's economic growth.

Economists blame three factors:

  • Economic growth remains sluggish, advancing at a seasonally adjusted annual pace of less than 2 percent for three straight quarters -- below the prerecession average of 3.5 percent. That effectively has put a lid on inflation, which has been near or below the 2 percent level the Federal Reserve considers healthy for the economy.
  • Businesses are changing how they manage payrolls. Economists at the Federal Reserve Bank of San Francisco in a recent paper said that, in the past, companies cut wages when the economy struggled and raised them amid expansions. But in the past three recessions since 1986 (and especially the 2007-2009 downturn) companies minimized wage cuts and instead let workers go to keep remaining workers happy.
  • Globalization continues to pressure wages. Thanks to new technologies, Americans are increasingly competing with workers worldwide. According to Boston Consulting Group, there will be only a roughly 10 percent cost difference between the United States and China in making products such as machinery, furniture and plastics by 2015.

Besides not feeling confident enough to demand higher wages, employees also are wary of going out and looking for better jobs. Only 1.6 percent of employed Americans quit their jobs in June, below the roughly 2 percent to 2.2 percent prerecession level. People tend to quit jobs more readily when they are confident they will find a new one that's equal or better.

Source: Neil Shah, "Stagnant Wages Are Crimping Economic Growth," Wall Street Journal, August 25, 2013.

 

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