Tags: Samuelson | wage | gains | workers

WaPo's Samuelson: 4 Possible Explanations of Weak Wage Gains

By    |   Tuesday, 20 January 2015 11:34 AM

While employment is rising, wages are stagnating.

The economy added 2.95 million jobs last year, the most since 1999. But average hourly wages rose only 1.7 percent in the 12 months through December, the smallest gain since October 2012.

Washington Post columnist Robert Samuelson offers four possible explanations for the sluggish wage growth.
  • "Shadow unemployment." Many unemployed workers who stopped looking for jobs, meaning they aren't counted as being unemployed, want a job, "expanding the pool of available workers and reducing wage pressures," Samuelson explains.
  • "Job insecurity." Workers aren't looking for new jobs, because they're afraid they won't find one. "Therefore, employers don't have to raise wages as much to keep good workers or recruit new workers," Samuelson says.
  • "Delayed pay cuts. Companies have skimped on annual pay increases, because they didn't sharply reduce pay in the Great Recession."
  • "More [global] competition and less [union] protection."
So which explanation is the winner? "No one knows whether all — or none — of these theories are correct," Samuelson writes.

"What seems true is that, one way or another, the mechanism connecting low unemployment to rising wages and higher inflation has weakened. We don't know by how much or for how long."

Backing up his third point, San Francisco Federal Reserve researchers Mary Daly and Bart Hobijn write in a report that the workers who account for the bulk of slow wage growth are in industries that have the least ability to reduce pay in economic slowdowns.

"In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level," they say.

"Since it takes some time to fully exhaust the pool of wage cuts, wage growth remains low even as the economy expands and the unemployment rate declines."

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While employment is rising, wages are stagnating.
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Tuesday, 20 January 2015 11:34 AM
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