Wage Growth Is Low but So Are Inflation and Productivity Forecasts based on economic data are subject to interpretation, and different economists will judge differently whether the glass is half full or half empty. Over the last 24 months through March, for instance, U.S. inflation has been pegged at 1.4 percent a year and productivity growth at 0.6 percent, Neil Irwin, senior economics correspondent for
The New York Times,
recently reported. "Those are very low numbers," Irwin noted, and "you may expect average worker wages to have risen only 2 percent." However, "the average hourly earnings for nonmanagerial private-sector workers rose 2.4 percent a year in that period," which is "more than we might have expected, with inflation and productivity so weak." "If anything," Irwin wrote, "the numbers show that workers are capturing more than their share of the spoils from a growing economy."
Wage-Constraining Pressures
"Some economists also point to rising costs of benefits such as health care as a brake on take-home pay,"
wrote MarketWatch's Jeffry Bartash. "If companies have to pay more to insure their employees, they’ll offset the cost by raising wages more slowly."
He also noted global competition, given that "companies may be too afraid to take on added labor costs for fear of losing out to domestic and foreign rivals who pay workers less," and the skills gap, since "many U.S. workers...lack the necessary skills to warrant higher pay" and "companies have to pay more to train new or future employees who won’t be as productive when the first start out."
Downward pressures on wage growth were also
noted by Scott Kingdom, vice chairman of the Korn Ferry Institute, a research affiliate of pay consultancy Korn Ferry Hay Group.
"On the face of it, it doesn't make sense: strong demand for labor, yet stagnant wage growth," Kingdom observed. "The deeper reasons reveal a labor market that, in most sectors, is not as tight as unemployment numbers make it seem. Many employers can easily hire the talent they need without having to bid up on wages." There are exceptions to the low-wage norm, Kingdom pointed out. "Top performers, especially those in high-growth niches such as in technology or alternative energy, always make more money. They may, in fact, see a bidding contest for their services." But elsewhere, "in this era of ever-growing efficiencies and companies trying to boost profits by reducing expenses, wage growth is likely to be muted."
Different Strokes
While employees typically expect annual pay raises that outpace inflation, "that may not be a huge issue with all workers," Kingdom added. "Some baby boomers, for example, scarred by the 2008 recession and nearing retirement, may be just happy to have work regardless of pay." Moreover, "some people who aren't negotiating as hard for money are seeking instead different incentives such as flextime, telecommuting, and additional vacation and paid time off."
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