Wage stagnation has been a major concern among economists, policymakers, and most of all workers in the US since the Great Recession: While unemployment has fallen, the tight labor market hasn’t been pushing up wages very far or very fast. April’s jobs report from the Bureau of Labor Statistics, for instance, showed wages rising 2.5 percent year-over-year, well below the 3.5 percent figure the Federal Reserve is hoping to see.
Yet for all that, the New York Times’ Neil Irwin observes, wages have actually been growing faster than productivity and inflation over the past two years—in other words, faster than the economic fundamentals would tend to predict:
Over the last 24 months through March, inflation has come in at 1.4 percent a year, and productivity growth at 0.6 percent. Those are very low numbers. And in our supersimple model, you may expect average worker wages to have risen only 2 percent. In fact, the average hourly earnings for nonmanagerial private sector workers rose 2.4 percent a year in that period. You may not feel like cheering about that, but it’s more than we might have expected, with inflation and productivity so weak. The real mystery, then, isn’t why wages are rising so slowly, but why they’re rising so fast.
If anything, the numbers show that workers are capturing more than their share of the spoils from a growing economy. And that, as it happens, is the reverse of a decades-long trend. For most of the last half-century — 84 percent of the time since 1966 — average wages have grown more slowly than would be predicted based on productivity and inflation growth. The rise in the share of employee compensation that takes the form of health benefits instead of wages is a factor, but doesn’t explain the whole gap; for long stretches, that gap exceeded 2 percentage points a year.
As to what is causing this divergence, Irwin hesitates to speculate, pointing to minimum wage increases and persistently low unemployment numbers as potential factors. Perhaps, he adds, the causal relationship is backward, and years of lackluster wage growth are partly responsible for the recent plateauing of US productivity. Either way, Americans are unlikely to feel any better about their small raises for the fact that they might be even smaller.