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The current expansion’s disappointing productivity growth is probably the most cogent reason for the muted wage growth. And in any event, it will be years before many novel applications of technology are commercially viable. But as we discussed recently, innovations in the workplace tend to raise worker wages by increasing productivity. national income accounted for by corporate profits relative to wages typically declines during the course of expansions, but not so much this time.Į) Robotics and artificial intelligence are taking deeper root in the workplace, and some think that the advancing application of technology is placing a lid on worker wages. In addition, the increased pace of corporate consolidation over the past several years has made it more difficult for employees to increase their wages by moving to competitors, and the slow pace of small business formation has limited opportunities at start-ups. Limits on mobility limit the ability of workers to seek and find higher wages elsewhere.ĭ) Corporations have become increasingly resourceful at limiting their wage bills, either by shifting work to low-cost locations or by hindering the bargaining power of their employees. A growing cultural divide between urban and rural areas may also dissuade migration. Housing is relatively expensive in job/population centers, and movers leave behind sources of financial and social support. This might have been the case during the initial phase of the current expansion, but it seems logical that this effect would dissipate over time.Ĭ) Workers appear less willing to relocate. Since firms typically do not cut worker wages during slow times (preferring to cut workers, instead), they limit wage increases for a time during recovery periods until worker value and worker compensation come into closer alignment. Of late, however, the value of benefits has not been rising as quickly.ī) At the Federal Reserve’s 2014 Jackson Hole gathering, Janet Yellen hypothesized that there was “pent up wage deflation” left over from the 2008 recession. During the first six years of the current expansion, the value of employee benefits was rising much faster than wages were this might have kept a lid on pay demands. When the value of these benefits rises, workers might be content with more modest increases in their salaries.

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Observers have offered a series of potential explanations for the apparent breakdown in the traditional relationship between the availability of labor and its cost.Ī) Many people get a series of benefits through their employers, health insurance chief among them. All of this suggests there isn’t much idle capacity left and that wages should be increasing more quickly. Labor force participation is still below its long-run trend, but the difference between the two is narrowing and research has found addiction and disability to be limiting prospects for many not actively looking for work. job market is as strong as it was ten years ago. But a broader range of indicators (part-time employment, long-term unemployment, quit rates and job openings) indicate the U.S. Wages can be held down by pockets of workers not well accounted for by this metric.

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To be fair, the unemployment rate does not fully capture the full extent of available human capital. But this time around, both nominal and real hourly earnings growth has failed to match the peaks seen in past upturns. This has certainly been the case during recent American expansions, when annual wage gains topped 4%. Supply and demand theories suggest worker scarcity would increase the price paid for labor. There are many theories that attempt to explain this trend, but there is no definitive sense of whether it will pass or persist. This puzzling outcome is complicating the economic outlook and the conduct of monetary policy. employment conditions are their best in a decade, pay raises remain very modest. I think I will also need a pay raise to generate the capital needed to celebrate the occasion properly. I had to order another beer to calm my nerves. Sponsorship levels and guest lists were up for discussion these are hardly the subjects of light conversation. Just as I felt my blood pressure beginning to descend, my eldest and her fiancé began detailing their wedding plans. The sun was setting, the beer was cold and I had my family around the table. So when I sat down to dinner on the first night of my recent sojourn, I was looking forward to relaxing. (After which you will receive 25 e-mails asking if you can call in to a committee meeting from your holiday.) The process can be very stressful. Last-minute requests need to be addressed, ongoing efforts must be delegated to others and out-of-office messages have to be posted. As many of you know, making a clean getaway out of work and into vacation isn’t easy.