Economic growth being slowed by stagnant wages? Among other things …

posted at 1:21 pm on August 26, 2013 by Bruce McQuain

That’s certainly one of the factors keeping GDP growth low.

Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.

Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.

Not only that, but unemployment remains historically high years after the so-called recovery.  The question, however, is why wages are remaining stagnant.  The WSJ cites three factors:

Economic growth remains sluggish, advancing at a seasonally adjusted annual pace of less than 2% for three straight quarters—below the prerecession average of 3.5%. That effectively has put a lid on inflation, which has been near or below the 2% level the Federal Reserve considers healthy for the economy. With demand for labor low, prices not rising fast and 11.5 million unemployed searching for work, employers aren’t under pressure to raise wages to retain or attract workers.

Emphasis mine.  The Fed is happy with the inflation rate.  And the administration, despite numerous claims to be focused like a laser beam on “j-0-b-s” has done little if anything to address unemployment or economic growth.  Finally, given the uncertainty that regulation and new laws (such as ObamaCare) bring to the table, employers are even less likely to hire until the regulatory and legal dust settles and they have a much better idea of how both effect their business and industry.

Secondly:

Businesses are changing how they manage payrolls. Economists at the Federal Reserve Bank of San Francisco in a recent paper said that, in the past, companies cut wages when the economy struggled and raised them amid expansions. But in the past three recessions since 1986—and especially the 2007-2009 downturn—companies minimized wage cuts and instead let workers go to keep remaining workers happy. As a result, to compensate for the wage cuts that never were made, businesses now may be capping wage growth. “As the economy recovers, pent-up wage cuts will probably continue to slow wage growth long after the unemployment rate has returned to more normal levels,” the researchers said.

Another point to make, again considering the unemployment rate, is that those working are glad to still have a job.  And with the economy still struggling it is unlikely that many feel the time right to push for higher wages.  In fact, it is a “buyers market” right now when it comes to labor.  And it will remain one until we get into much higher growth percentages and the demand for labor begins to outstrip the supply.  We’re not even close to that at this point.

Finally:

Globalization continues to pressure wages. Thanks to new technologies, Americans are increasingly competing with workers world-wide. “We are on a long-term adjustment, as China, in particular, but all developing countries, get their wages closer to ours,” said Richard Freeman, an economist at Harvard University. According to Boston Consulting Group, there will be only a roughly 10% cost difference between the U.S. and China in making products such as machinery, furniture and plastics by 2015.

Technology is also replacing workers in many industries.  Automation is especially tough on low skilled workers.  But again, given laws like ObamaCare, the incentive at work is to have fewer employees, not more.  Businesses will automate where it makes sense and helps make a profit.  It is also a means of closing that wage gap mentioned above, so it isn’t a trend that is likely to end anytime soon.

All of those factors and what I’ve mentioned in addition to them combine to make unemployment and wage growth both remain static.  There simply aren’t any incentives at the moment to hire more people.  Certainly not in GDP growth.   Certainly not with the plethora of new regulations and laws.

In fact, as is mentioned in the article, at the moment there are only two paths to higher wages:

The only path to wage gains is through a stronger economy or an increase in demand for specialized skills.

The economy is moribund and has been for quite some time with GDP growth under 2% for the last three quarters.

That narrows the path to wage gains to a single one – developing specialized skills.  It isn’t a path open to everyone, unfortunately, for a number of reasons.

So how could government help change all of that?  Quite simply by getting out of the way – something it seems completely unable to comprehend or do.

And because of that, it continues to contribute negatively to the economic situation we endure.

~McQ


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So wages and salaries by family or by capita going down by 10% over the last 5 years is “stagnation”?

oldroy on August 26, 2013 at 1:23 PM

Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.

SO DOES the high price of gasonline. At the new LOWER price of gas, we are still paying $35 MORE per tankful than when Obama came in. That’s three outfits for our kids, or a nice meal out …each WEEK..PER CAR!

Get the price of gas DOWN, and let us spend money on what WE WANT…

originalpechanga on August 26, 2013 at 1:25 PM

Of many great in Obama’s america ironies, its fossil fuel extraction that is re-industrializing parts of America and creating jobs and actual wealth.

rob verdi on August 26, 2013 at 1:26 PM

Another thing the government could do to boost demand for labor would be to tighten enforcement of the laws prohibiting hiring illegal aliens, or at least stop trying to legalize the status of illegal aliens. That would reduce the competition for jobs for citizens and legal residents, and would be particularly helpful to unskilled and low-skilled workers.

J.S.K. on August 26, 2013 at 1:28 PM

I wish we could go Mario on brick to all Obama voters to recoup wasted capitol and opportunity cost.

Murphy9 on August 26, 2013 at 1:29 PM

And the administration, despite numerous claims to be focused like a laser beam on “j-0-b-s” has done little if anything to address unemployment or economic growth.

That’s because he and his party would have to ditch their agenda so that the economy could recover. With Obamacare, the picture is going to get worse.

rickv404 on August 26, 2013 at 1:33 PM

Obama’s idea to US unemployment crises?

Amnesty illegal aliens, financial penalties to US employers who offer jobs to US citizens and not the new now somewhat ‘legal’ aliens…

Obama is ruining the USA intentionally. Make no mistake, what some say is ineptitude and bungling (“cluelessness”) is, in my view, intentional and intentionally harmful to the USA.

Lourdes on August 26, 2013 at 1:35 PM

Damn ATM machines, they killin’ us….

Obama

hillsoftx on August 26, 2013 at 1:38 PM

The only path to wage gains is through a stronger economy or an increase in demand for specialized skills.

I demand a president with political skills. I sure wish we could lay Jugears off!

Maybe if The One had any skills, we would be better off. As it is, he only knows how to campaign.

Patriot Vet on August 26, 2013 at 1:38 PM

More head winds …

VibrioCocci on August 26, 2013 at 1:41 PM

Get the price of gas DOWN, and let us spend money on what WE WANT…

originalpechanga on August 26, 2013 at 1:25 PM

I can only imagine how high gas would be if we weren’t an oil exporter nation now. In spite of President Obama, the U.S. has been very successful at oil exploration,it would be nice to see this at the pump.

DDay on August 26, 2013 at 1:42 PM

I demand a president with political skills. I sure wish we could lay Jugears off!

Maybe if The One had any skills, we would be better off. As it is, he only knows how to campaign.

Patriot Vet on August 26, 2013 at 1:38 PM

Careful there PV, our resident racist troll recently admitted that we should not be judging the filthy rat-eared traitor on the basis of ability. It is enough that a black (mixed race actually) man got elected President. As such, it is okay that he’s a second-rate human being who is killing the American dream for generations to come. If ever there is an antithesis of MLK’s “I have a Dream” speech it is the vile disgusting worthless bastard who calls himself President.

Happy Nomad on August 26, 2013 at 1:43 PM

More head winds …

VibrioCocci on August 26, 2013 at 1:41 PM

Just you wait! Recovery Summer isn’t over for at least another week! All that back to school buying with welfare checks is going to boost the economy!

Seriously, Is it just me or does it seem like everytime the economy stirs a little that the rat-eared bastard brings his jackboots down on it by way of another executive order? Once is unfortunate, twice is inept, but everytime is suspicious that he really wants recovery at all. How better than to subjugate a people than keeping them poor and dependent on the state for basic needs?

Happy Nomad on August 26, 2013 at 1:47 PM

…employers aren’t under pressure to raise wages to retain or attract workers.

So sayeth the amnesty supporting, Senate immigration bill supporting WSJ.

Charlemagne on August 26, 2013 at 1:50 PM

In fact, as is mentioned in the article, at the moment there are only two paths to higher wages:…

Wrong. A third path is to drastically limit immigration to reduce the labor pool and thus increase demand for American labor which will result in increased wages. It’s Econ 101.

Why the Hell do you think Big Business are such fans of the Senate bill? It’s because it will flood the US labor market with both low skilled and skilled labor and drive down labor costs.

Charlemagne on August 26, 2013 at 1:56 PM

Obama’s idea to US unemployment crises?

Amnesty illegal aliens, financial penalties to US employers who offer jobs to US citizens and not the new now somewhat ‘legal’ aliens…

Not to mention the pressure business puts on government to allow greater numbers of aliens to come here on “temporary” work visa because not enough “qualified” American citizens can be found willing to fill technical positions………at the price point employers want to offer.

Obama is ruining the USA intentionally. Make no mistake, what some say is ineptitude and bungling (“cluelessness”) is, in my view, intentional and intentionally harmful to the USA.

Lourdes on August 26, 2013 at 1:35 PM

No mistake about it. He is far from inept and bungling, so long as he stay on script and does his mentors and advisors bidding. Its usually when he strays from his script he shows the evidence of his ineptitude most.

hawkeye54 on August 26, 2013 at 1:56 PM

This is the product of electing an incompetent community organizer to the highest office. He has no clue.

rjoco1 on August 26, 2013 at 1:57 PM

Don’t expect the socialist idiot in the White House to understand any of that.

Socialist truth is the ONLY truth. Wages are low because of GREEDY corporations. End of discussion.

Just ask King Barry.

GarandFan on August 26, 2013 at 2:01 PM

Please Don’t comment: A heads UP!

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canopfor on August 26, 2013 at 2:02 PM

hey! that laser beam isn’t wind powered, is it?

steveracer on August 26, 2013 at 2:03 PM

Slightly OT-

You have to click on the link at Drudge of the thousands that showed up for Levin’s book signing. It is not to be believed and gives me hope that maybe the producers can wrest the country back from this vile racist rat-eared pig and the criminals of his administration.

Happy Nomad on August 26, 2013 at 2:05 PM

hey! that laser beam isn’t wind powered, is it?

steveracer on August 26, 2013 at 2:03 PM

Of course not. It is powered by Solydra solar panels and battries built in Holland MI.

Happy Nomad on August 26, 2013 at 2:06 PM

Someone pushed the reset button and we’re still logging off. Recovery will be awhile yet.

TerryW on August 26, 2013 at 2:07 PM

It doesn’t take competence to destroy things. I think his handlers picked poorly. A slow boil coup where a communist America emerged intact should be preferred option. This is where his “cluelessness” comes in. Because he is incompetent they have to settle for option #2, a destroyed America. As long as a free America is gone, the communist are happy.

Flange on August 26, 2013 at 2:07 PM

It’s the evil corporations and selfish business owners who are to blame. If they would stop being so concerned about making a profit or keeping their businesses open then they could pay their workers far more than they are worth.

Obutthead learned that in kolledge from a vury smart perfesser who likewise never worked at a real job a day in his life, much less owned a business.

NOMOBO on August 26, 2013 at 2:14 PM

Yup, he’s focused like a laser on JOBS…Heeeey, aren’t lasers often times used to destroy things?

Battlecruiser-operational on August 26, 2013 at 2:14 PM

I wish. We just got our wages cut where I work. That combined with raising prices and the coming very high cost of winter, thank you AGW, are putting me in the poor house.

Dr. Frank Enstine on August 26, 2013 at 2:25 PM

Just to be clear I wish my wages were stagnant.

Dr. Frank Enstine on August 26, 2013 at 2:26 PM

Happy Nomad on August 26, 2013 at 1:47 PM

I believe, HN, that you’re asking rhetorically of the possibility of this being purposeful.
Well, that he has a purpose (destruction), that seems true by observation, does it not?

By that I mean, I agree with you.

mickytx on August 26, 2013 at 2:46 PM

Will Rogers would be unimpressed with my not so plain spoken truth.

mickytx on August 26, 2013 at 2:49 PM

And the administration, despite numerous claims to be focused like a laser beam on “j-0-b-s” has done little if anything

Solar powered laser beam…

right2bright on August 26, 2013 at 2:51 PM

hey! that laser beam isn’t wind powered, is it?

steveracer on August 26, 2013 at 2:03 PM

Didn’t see your post…wind/solar, it ain’t coal or oil…

right2bright on August 26, 2013 at 2:53 PM

Two things:
-at what point can we stop referring to this mess as an economic “recovery?”
-Is growth being slowed by stagnent wages or are wages stagnent due to poor economic growth?

hopeful on August 26, 2013 at 3:05 PM

Otherwise good article, but I take issue with

That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.

This is the Keynesian Krap the left has been trying to sell. Increasing real wages are an effect of economic growth, not a cause. That’s why increasing the minimum wage has never worked in this regard.

Rich H on August 26, 2013 at 3:08 PM

Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.

SO DOES the high price of gasonline. At the new LOWER price of gas, we are still paying $35 MORE per tankful than when Obama came in. That’s three outfits for our kids, or a nice meal out …each WEEK..PER CAR!

Get the price of gas DOWN, and let us spend money on what WE WANT…

originalpechanga on August 26, 2013 at 1:25 PM

When we have a Republican president, if the price of gasoline goes up it’s a national story. When gasoline is cheap, no one notices.

When we have a democratic president, the price of gasoline is not news.

slickwillie2001 on August 26, 2013 at 3:24 PM

ANy politician worth his salt should be able to answer what is a job with this statement:

A job is the happy byproduct of someone, a group, or business trying to make money in the pursuit of offering a product or service for sale.

The fact that no democrat would ever say that, and that some of the GOP would also fail that test is a testament to where we now find ourselves.

Zomcon JEM on August 26, 2013 at 3:31 PM

Kind of sort of the same topic: Treasury to reach it’s debt limit in mid-October. Now I thought that the debt hadn’t changed in half of a year or something like that. And if the Gov. is spending that much money, shouldn’t some of it make it’s way to wages?

oldroy on August 26, 2013 at 3:45 PM

Obama is focused like a laser on JO & BS.

OxyCon on August 26, 2013 at 3:55 PM

Obama is focused like a laser on his next vacation.

slickwillie2001 on August 26, 2013 at 4:35 PM

-at what point can we stop referring to this mess as an economic “recovery?”
hopeful on August 26, 2013 at 3:05 PM

When and if a repub becomes POTUS.

Dr. Frank Enstine on August 26, 2013 at 4:56 PM

Many companies have moved to contract work, too. Why keep employees around if you can hire them just when you have projects for them? More and more of the economy is becoming part-time or temporary.

hawksruleva on August 26, 2013 at 5:06 PM

employers aren’t under pressure to raise wages to retain or attract workers.

And they are salivating over the army of low paid slaves they will get from the amnesty bill.

dogsoldier on August 26, 2013 at 5:11 PM

Not even bayam has the wherewithal to rear his fallacious head these days. The fools…

Murphy9 on August 26, 2013 at 10:15 PM

Obama is ruining the USA intentionally. Make no mistake, what some say is ineptitude and bungling (“cluelessness”) is, in my view, intentional and intentionally harmful to the USA.

Lourdes on August 26, 2013 at 1:35 PM

This.

If obama was merely inept or stupid, once in a great while he would do something that was good for America.

Can anyone here name one?

runawayyyy on August 27, 2013 at 2:34 PM

Focused like a laser on jobs? Does a J sound like an M in Indonesia?

runawayyyy on August 27, 2013 at 2:41 PM