When will paychecks grow?

Wages remain flat even though the economy continues to display signs of healthy growth

Income growth.
(Image credit: iStock)

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"An odd thing has happened" to the U.S. economy, said Chico Harlan and Ylan Q. Mui at The Washington Post. The unemployment rate fell to 5.1 percent in August, one of its lowest levels in 40 years. But pay has barely budged since the end of the recession, with wages rising only half as quickly as they did throughout much of the 1980s and '90s. "Never before has the nation's unemployment rate plunged so low — a point when companies should be competing aggressively for workers — while wages have stayed so flat." The cause of this salary slump remains something of a puzzle. It could be that paychecks are being "pushed down by fundamental changes in the way companies treat workers, or by a decline in union membership." It could be that "a wage spike is just around the corner." But as the economy as a whole continues to display signs of healthy growth, the withering of worker pay is "only growing more perplexing."

"For most Americans, wages aren't just stagnating — they're falling," said David Dayen at The Fiscal Times. Inflation-adjusted wages have actually dropped since the recession ended, according to the left-leaning National Employment Law Project. Low-income workers have taken the biggest hit, especially restaurant workers. Cooks' pay has fallen 8.9 percent, and food preparation workers' 7.7 percent. Janitors, home health aides, retail salespersons, and maids have also experienced deeper than average cuts. The declines get worse the farther you move down the income scale. "If you want to know where the grassroots energy over the Fight for $15" minimum wage comes from, look no further.

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The lack of wage growth is exactly why the Federal Reserve shouldn't raise interest rates later this month, said Joseph Stiglitz in The Guardian. The notion that the economy has returned to normal would be met with "derision" in most households. If the Fed raises rates before wages are allowed to recover, workers will never regain the pay gains that have been lost since the recession. The Fed should recognize that the fruits of rising labor productivity have flowed disproportionately to "corporate profits, executive compensation, and shareholder returns rather than worker pay," said The New York Times in an editorial. CEOs now make 300 times as much as the typical worker, compared with 30 times as much in 1980. The central bank has a responsibility to make sure the economy is "generating and sustaining broad prosperity." That's simply not the case right now. "The proof is in the paycheck."

Wages won't rise until we find jobs for America's "shadow workforce," said Neil Irwin, also at The New York Times. Huge numbers of Americans who were knocked out of the labor force by the downturn still haven't returned. The share of adults ages 25 to 54 who were employed fell from 80 to 75 percent during the recession. Since then it has rebounded only to 77 percent. Add in older workers who were forced to retire early and "you quickly arrive at millions of Americans able and willing to work." When employers have no problem filling positions, they have no incentive to raise wages. But once more of the shadow workforce returns, the tables should turn. And "when that happens, higher wage gains should follow."

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