Solution to Wage Stagnation: Innovation
March 16, 2015
A recent job report showed that Gross Domestic Product (GDP) and employment have been growing, and the unemployment rate has fallen to 5.5 percent from its high of 10 percent in 2009. However, adjusted for inflation, wages have only shown modest signs of growing. Yet in advanced industries, wages have increased. The report showed advanced industries are hiring and expanding job growth, and they are finding it relatively difficult to fill vacancies.
As of 2014, the average salary was $92,400 for advanced industry workers, compared to just $48,800 for workers outside advanced industries.
- While workers outside the advanced industries sector experienced only a 38 percent increase in salaries from 1980 to 2014, compensation in advanced industries rose 89 percent, adjusting for inflation.
- The salary premium is relatively high at all levels of education. For workers with less than a bachelor's degree, earnings in advanced industries are between 50 percent and 70 percent higher than in other industries.
- In the immediate term, inflation-adjusted wages are up 9 percent across the advanced industries sector compared to before the recession. Outside of it, wages are up just 1 percent.
The reason why advanced industries do not have wage stagnation is that they are distinguished by their strong orientation to technology, innovation and skilled workers to develop and scale up new products. The commitment to innovation typical of advanced industries positions them in high-value, high-margin global markets and leads them to hire and train skilled workers.
Source: Jonathan Rothwell and Mark Muro, "From advanced industries, a lesson about wages," Brookings Institution, March 10, 2015.
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