3. Why Americans aren't seeing wage hikes
Amid the tightest labor market in a generation, long-strapped Americans are seeing only small wage hikes, and economists say companies seem determined to hold onto wide profit margins as long as they can before forking over more.
Why it matters: Stubbornly flat wages and living standards are one reason for broad political disgruntlement in the U.S.
Quick take: Economists have struggling to grasp why companies are not feeling forced to pass on bigger wages to attract and keep workers despite two years of steadily dropping joblessness, reaching 3.9% last month, the lowest since 2000. But an increasing consensus is this simple conclusion — because they can.
- "As long as firms have the clout to hold back pay increases, they will," Jared Bernstein, chief economic adviser to Vice President Joe Biden during the Obama administration, told Axios today.
The background: In the 2000 plunge to 3.9% unemployment, wages increased by 4% on average. Today, companies across industries and the country complain of an employee shortage, yet on average they raised wages by just 2.6% last month.
Among reasons cited by economists:
- A new underlying structure: Productivity growth is lower, people are more or less permanently out of the work force with drug addiction and criminal records, and unionization numbers are much smaller.
- Business trends: Companies are becoming more automated and industries more concentrated, says Martha Gimbel, research director at Indeed.
But, but, but ... Mark Zandi, chief economist at Moody's Analytics, alternatively cites the quarterly Employment Cost Index, which shows a 2.9% wage increase last quarter. He predicts that the number will rise to 3.5% this time next year and closer to 4% by the end of 2019.
Go deeper: Read the whole post.