Why Aren’t Wages Increasing?

In his column at the Washington Post Robert Samuelson considers why wages aren’t increasing:

According to government figures, there are now 6.7 million job openings — a record high— and “the rate at which workers are quitting their jobs is higher than it was before the onset of the Great Recession,” writes economist Michael Strain of the American Enterprise Institute in a column for Bloomberg. Still, as yet, wages haven’t exploded. One intriguing theory asserts that psychology and norms have changed, writes Strain.

“People who entered the labor market during and after the Great Recession have lived through some rough times and don’t have strong memories of better times,” he writes. “I’m sure that many workers — both relatively new entrants and those with long experience — have had moments when they felt lucky to have a job at all. Even though the economy has been strengthening for years, are workers reluctant to go into the boss’s office and ask for a raise? Likewise, are employers used to resisting increases in their payroll obligations?”

Maybe.

The reasons he considers include:

  • Continued slack in the labor market
  • Demographics
  • Increases in non-wage compensation
  • Compensation for downwards inelasticity of wages
  • Wages actually are growing but the data are being misinterpreted
  • Slow growth in productivity

and I think they’re all factors in varying degrees. I can only speak from my own experience.

I do see various forms of non-wage compensation not just including benefits like health care which were unheard of in the companies I worked for 40 years ago but appear to be pretty common now. Things like snacks in the lunchroom, the company furnishing lunch once a week, or various company social activities. when you total them all up they amount to less than $1,000 per employee, a drop in the bucket when you’re talking about average employee compensation of wages and benefits in the high five figures or low six.

Forty years ago I got a raise every year and regular promotions. I’ve been working for the same company for the last four years (an eternity in my sector) and, despite glowing performance reviews and obvious contributions to the company’s bottom line, I haven’t received a raise or a promotion. Granted at my level there isn’t a lot of room for promotion but the level of responsibility I’m taking on is at the upper middle management level while my title is a pretty lowly staff title. I confronted my boss about that at the end of last year and I’m thinking of doing that again. I’m in a pretty strong bargaining position.

I think that employers are living in the past and I mean the past of 15 years ago not the past of 35 years ago. In that past of the early Aughts anybody could be replaced by a worker brought in from offshore at a fraction of the salary, at least in their imaginations. The reality today is closer to that you can replace somebody with a strong work ethic and experience with someone with no work ethic or experience. Maybe. You also might end up paying twice as much to an outsourcing company for a worker that needs constant oversight.

5 comments… add one
  • Guarneri

    “I confronted my boss about that at the end of last year and I’m thinking of doing that again. I’m in a pretty strong bargaining position.”

    Be careful, now. As I’ve learned in the last 24 hours (snicker) you can’t be direct and speak with them like two adults would, especially given that it’s an important relationship. You must speak in in code, beat around the bush, offer them a lollipop, conclude with a meaningless, platitude filled speech and then pray they fulfill your request. It’s the way it’s done you know. I heard it on MSNBC. But I digress….

    As freshly minted summer residents of Asheville we have noticed an unmistakeable phenomenon. You go to restaurants and there are large waits and large sections of unused tables. Kitchens are backed up. So we started asking our servers what was going on. Simple. People can’t be found to fill the positions, or they simply don’t show up on any given day. Further questioning did not elicit complaints about wages, but rather, it’s a lifestyle issue. Anyone familiar with Asheville will understand. I don’t know if it applies more broadly.

  • Ben Wolf

    It’s like that with pretty much all resort towns. Tips have not nearly matched rising living costs and motivated people can’t be retained.

  • Guarneri

    Asheville, like Greenville, SC, is not really a resort town. Cashiers, yes. Boone, yes. Hendersonville, yes.

  • TarsTarkas

    I think it depends on the industry, the size of the firm, and the attitude of the company owners. We have always given annual raises, and that plus various incentives have resulted in us having an incredible retention rate, but then we are a small family company.

  • Ben Wolf

    Asheville is Myrtle Beach for the rich.

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