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Despite continued progress in the labor market, wages have been rising slowly. In 2014, total nonfarm payroll employment rose by 3.1 million and the unemployment rate declined by 1.1 percentage points to 5.6 percent, indicating that the labor market was improving. Meanwhile, average hourly earnings and compensation per hour rose only by 1.8 percent and by 2.5 percent, respectively, a smaller increase than one might expect after 5 years of economic recovery. In this article, we look at some factors behind the slow pace of wage growth, including slow productivity growth and labor’s declining share of income.
One reason wages have been rising slowly is that prices have been rising slowly. Low inflation, however, does not explain the trend in wages completely. Even after subtracting the effect of inflation, wages have been rising slowly. In 2014, real average hourly earnings and real compensation per hour rose, respectively, by only 1.2 percent and 1.3 percent.
In fact, real wages have been rising slowly for several years. Measuring from the end of the Great Recession, real wages have barely risen—real compensation per hour has risen only by 0.5 percent, much less than at this point in past recoveries. The lack of strong wage growth has been one factor that has held down the growth of income, consumer spending, and the recovery.
Some temporary factors may explain, in part, weak real wage growth during the recovery. For instance, Daly and Hobijn (2015) suggest that many firms were not able to reduce wages during the Great Recession, so they compensated by not raising wages as fast during the recovery. This factor, however, became less and less important over time as the recovery continued to progress.
Another factor that may have held down wage growth during the recovery is a change in the composition of jobs and hours—a relative increase in lower-paid jobs and hours may have depressed the average wage. Data, however, suggests that a change in the composition of occupations did not have a strong effect on the average wage: The employment cost index for total compensation—an index that tracks the cost of labor for a fixed composition of occupations—has risen by 11.5 percent during the recovery, which is similar to the growth in average hourly earnings and compensation per hour, which have risen, respectively, by 11.3 percent and by 11.5 percent. Also, Elvery and Vecchio (2015 , Table 2) find that the effect of the change in the mix of occupations on the change in the average wage between 2010 and 2013 was small (and actually positive). Similarly, Mancuso (2015) finds that shifts in industry composition do not explain much of the weakness in wage growth during the recovery.
Some longer-term changes in the economy have likely played a larger role in depressing real wage growth. The first is the slowdown of labor productivity in the last decade. Productivity growth in the nonfarm business sector has averaged only 1.46 percent since 2004 and 0.85 percent since 2010. As the growth of labor productivity is a key determinant of real wage growth in the long run, the slowdown of productivity has probably helped to depress wage growth.
Other long-term changes in the economy, including the evolution of the technology used to produce goods and services, increased globalization and trade openness, and developments in labor market institutions and policies, have caused labor’s share of income to decline at a faster pace since 2000 than in previous years, and in doing so they have likely held down real wage growth. After declining at an average rate of 0.1 percent per year from 1960 to 2000, the labor share has declined more rapidly since 2000, on average about 0.5 percent per year (see Jacobson and Occhino, 2012). In an accounting sense, the faster decline since 2000 has subtracted about 0.4 percentage points per year from average real wage growth relative to the period before 2000.
Going forward, wage growth will likely pick up in the short run, as inflation rises and labor market conditions strengthen further. In the longer run, whether average real wage growth remains lower than in the past will depend on whether trend productivity growth continues to be low and whether other fundamental economic forces cause further declines in the labor share of income.(The Big Picture)
14 comments:
This post discusses the slow growth of wages in the united states. since wages are growing so slowly the recovery process from the past recession is taking much longer than usual. even though it is happening slowly the recovery is happening wages are rising and even though it is still lower than the past there are many factors such as productivity and inflation that can help determine how much wages will grow in the future.
This article discussed “some factors behind the slow pace of wage growth, including slow productivity growth and labor’s declining share of income.” The article said that one of the reasons wages are rising slowly is because prices have been rising slowly. Being that prices are rising slowly, if the wages rise slowly it will go hand and hand with the prices they are able to afford and the income they are receiving. Going back since the end of the Great Recession,the article said real wages have barely risen since then. Being that many firms were unable to reduce wages of employees during the Great Recession, they are now taking their time raising wages after.
Although wages are growing slowly the unemployment rate has slowly risen and the labor market is improving. This shows that we are recovering slowly from the great depression because it has not risen much. The number may be increasing but this could be because more lower paying jobs are being offered. Since firms were not able to reduce wages during the great depression they decided that during the recovery they should do the same and this resulted in in the weak wage growth. Advancements in technology have also slowed down the wage growth.
This article discussed the slow growth of wages in the United States and some of the causes of it. The article claims that a large reason why wages have been growing so slowly is because prices have been growing at a slow rate. Wages have been raising at an extremely slow rate since the Depression, but are on the right track.
The article explains the factors that are "behind the slow pace of wage growth". It is not a shock to see that they have not really grown since the Great Recession. It has only been a few years and companies, and employees alike, would rather see their wage increase steadily, then increase dramatically and then but cut or possibly laid off in times of hardship. However, they are continuing to rise!
This article discusses the slow wage growth in the United States. Real wages have been rising slowly since the end of the Great Recession, along with a 0.5 percent rise in real compensation per hour. This article also discusses the many reasons behind the slow wage growth. One of the many reasons stated to contribute to the slow rise in wages is the increase in prices. However, if the prices keep rising forcing us to raise wages already then those that fight for an increase in minimum wage are going to also see a major spike in prices to follow as an effect. Additional reasons for the slow rise in wages include the increase in lower paid jobs and hours and the slow down in labor productivity. However, I do agree with the article in that they state wage growth will likely pick up in the short run as inflation rises and labor market conditions strengthen.
This article brings up the subject of the slowly rising wages and their causes in the United States. Although it is a slow process because of a few important factors companies are happy to see it up and coming.
One of the interesting thing about most recessions or depressions is that soon after, there tends to be a big burst in the economy. However, this past recession has been a bit of an outlier in that progress is slow and does not indicate clear progress. Wages and unemployment have been sluggishly rising and this is not optimal seeing as the U.S. is supposed to emerge stronger than ever in almost every way. The article did bring up a good point though in that employers could not reduce wages during the recession like in the past, so that could have had a legitimate impact. Overall, the policies of today are significantly different than during past economic hardships so naturally speaking, the market is reacting much differently. Only time can really tell how much this trend will continue or if the big boom that is expected is on its way.
Brian said...
One of the interesting thing about most recessions or depressions is that soon after, there tends to be a big burst in the economy. However, this past recession has been a bit of an outlier in that progress is slow and does not indicate clear progress. Wages and unemployment have been sluggishly rising and this is not optimal seeing as the U.S. is supposed to emerge stronger than ever in almost every way. The article did bring up a good point though in that employers could not reduce wages during the recession like in the past, so that could have had a legitimate impact. Overall, the policies of today are significantly different than during past economic hardships so naturally speaking, the market is reacting much differently. Only time can really tell how much this trend will continue or if the big boom that is expected is on its way.
Slow wage growth is one of the most discussed topic in the world economy right now. Normally it comes down to three points why there it is slow in the current times.One, people stay in their current jobs for longer period of times as they want to pay off their debts or are saving for their retirement.Secondly, people stay in the same job and demand for higher wage from their current jobs.Third, people who have been out of work for long period of times are returning to their work and after the financial crisis, they want to work. Mostly, new jobs are created in low skilled roles therefore there is not huge increase in wage demand. Then their is added pressure on corporations to keep the cost low so that they can keep their products competitive. The companies try to cut corners by keeping the wage growth at minimum in an attempt to control inflating cost. One major subject which is under heavy scrutiny in the current UK elections is zero-hour contracts which allow companies to layoff employees at short notices. Critics of these contracts debate that it is due to these laws that there is slow wage growth.
There has been slow wage rate in the U.S. for many years as discussed in this article. The fact that that wages are slow growing also shows that we are moving out of the past recession much slower. Also, the article says that since the wages are moving slowing that prices are moving slowly as well. The economy is usually are able to come out of a recession stronger than before but it is different for this time since the wages are not increasing as well. I think that we should raise wages in order to boost the economy and also to help the people that are on minimum wage considering most of them cannot live off of minimum wage.
The article talks about the slow growth of wages in the United States and some reasons to why it is persisting. After 5 years of economic recovery, one would expect a substantial increase in wages. One reason why wages have not been rapidly growing is because of the slow rise in prices. However, low inflation is not the sole reason. Another reason is that many firms could not lower wages during the Great Recession, so they are making up for it by not raising wages during the recovery. Also, more lower-paid jobs are being fulfilled which has a part in the average wage not increasing. Much of the uninformed public might not understand these reasons and why they matter, however they would be able to understand that low productivity has also been a major cause of low wage growth. Moving on, wages are expected to increase in the short run, however the same thing cannot be said about the long run because it is unsure what is going to happen.
This article discusses the slow wage growth in the United States. The real wages have been growing slowly since the end of the Great Recession, alongside with a 0.5 percent rise in real compensation per hour. It also states that one of the reasons wages have been growing slowly is because prices have been rising slowly. Since prices are rising slowly, the wages increase slowly with it. Another reason for the slow rise in wages is the increase in lower paid jobs and hours; also the slow down in labor productivity also contributes to the slow rise in wages. The final reason firms aren’t able to lower wages was because of the Great Recession, so they’re making it up by not raising wages during the recovery. In the end, wages are expected to increase in the short run; however, it is unsure about the long run because there is no expectancy on what is going to happen.
While an increase in wages sounds like a good thing, when prices are rising that just shows that we're facing inflation. I have a feeling that the economic bubble will burst soon enough. Also, compensation rates are poor, they only received a .05% rise since the Great Recession. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts. This pattern is evident nationwide and explains the variation in wage growth across industries. Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery.
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