It’s starting to sound like a broken record at this point: the economy is sluggish, wages aren’t increasing, and the middle class is struggling. This isn’t news to anyone. The matters at the heart of America’s economic woes are complicated and have roots in a number of different issues. This is why there is no “magic bullet” solution, and it’s also the reason why policymakers are unable to turn things around with a snap of their fingers.
While the unemployment rate has fallen considerably and a number of other economic indicators are showing that things are falling picking up speed, one area that has not seen any improvement — and that is likely slowing many other areas of the economy — is wage growth. And the wage issue isn’t relegated only to the American economy. Global wage growth slowed to 2% during 2013, or a drop of 0.2% from 2012, according to CNBC. American wage growth has been similarly slow, with average hourly earnings bouncing around the $24.50 mark, as it has been for some time.
There has been some progress in the area of wages, particularly at the bottom. Minimum wage increases were passed by voter initiative in a number of states during the 2014 midterm election, and a series of cities have taken it upon themselves to raise their own wage floors, sometimes to as much as $15 per hour. The issue is that the promise of raises for workers is simply not materializing. Legislators have handed down tax incentives, among other things, in an effort to get a trickle-down effect which would, ideally, spur hiring and wage increases, but it just isn’t happening. This has led to increasing levels of income inequality and the widening of the wealth gap.
But there may be some good news around the corner. It looks like we may be hitting an area of critical mass, in which employers will finally need to start boosting employee pay. According to The New York Times, along with some new data from the National Federation of Independent Businesses, there is reason to be optimistic that the much-needed wage boom is nigh.
A survey from NFIB reveals that, by and large, businesses are much more optimistic about the economy than they were just a few months ago. On top of that, a growing percentage plans to hire more workers, and a considerable chunk (22%) reported raising compensation, as opposed to just 2% who reported lowering it. “The reported gains in compensation are still in the range typical of an economy with reasonable growth, and labor market conditions are suggestive of a tightening, which will put further upward pressure on compensation,” the survey says.
Expanding on that, The New York Times reports that there appears to be a discrepancy between the growing economy and actual employment numbers. Since the end of the financial crisis and the start of economic expansion in mid-2009, the number of open positions that employers are hiring for has drastically outpaced the number of actual people that are being hired to fill them. The ratio between the labor market and the number of open positions seems to be off — in other words, an employer with an open position to fill shouldn’t have trouble filling it, due to the number of potential applicants.
What is likely happening is that workers aren’t as desperate as they were a few years ago and are unwilling to accept the terms being offered by employers. As businesses may have been spoiled by a labor pool filled with desperate workers willing to work at bargain rates a few years ago, they are now faced with workers who want more, and justifiably so. “Eventually some employers will decide that they are leaving too much business on the table by not offering the pay and benefits and training that will fill their vacant openings,” writes The New York Times’ Neil Irwin. “If that happens on a wide enough scale, it will mean that the long-awaited gains in wages for ordinary workers will finally start to arrive.”
There is reason for optimism, though, as there are signs that wages could get a boost in the near future. Now, it’s just a question of when that will actually manifest. Wages have been stagnant for a very long time, and a spike to compensation would almost certainly give the overall economy a serious jolt. It’s been a long time coming, but hopefully workers won’t have to wait much longer for the right market conditions to fall into place.