Americans Need A Raise

But Dean Baker doubts it’s in the cards for the majority of them:

[M]ost workers are unlikely to see wage growth until the labor market has far less unemployment than at present. If the economy continues to add 240,000 jobs a month, we may be at this point somewhere in 2016, but we aren’t there now and we will almost certainly not be there any time in 2015. While the unemployment rate has fallen most of the way back to its pre-recession level, this is largely because millions of unemployed workers have dropped out of the labor force and are no longer counted as unemployed. Contrary to what is often claimed, this is not a story of aging baby boomers retiring.

Millions of prime age workers (ages 25-54) did not just suddenly decide to retire. They left the labor force because of weak labor demand. The number of people involuntarily working part-time is still 2 million above its pre-recession level. Furthermore, the share of unemployment due to people voluntarily quitting their previous jobs, a measure of confidence in the strength of the labor market, remains well below its pre-recession level.

[T]he National Federation of Independent Business Small Business Optimism survey, which just reached its highest level since October 2006, shows that the shares of small businesses reporting that they either recently raised wages or plan to in the next three months are at new post-recession highs … These numbers seem a bit hard to square with data from last week’s jobs report showing that wages have been flat for so long. Plans for future hiring in the NFIB index are also up, as are the number of job openings in another Labor Department survey released today; both suggest that upward pressure on wages should be rising, particular given the shrinking number of available idle workers out there.

Ben Casselman admits that it “isn’t clear why wages aren’t rising faster”:

One possibility is that the economy just hasn’t improved enough yet. Maybe if the workers-to-jobs ratio improves a bit more, employers will finally have to start offering raises. Or perhaps the ratio exaggerates improvements in the labor market because there are lots of workers who want jobs but don’t officially count as unemployed. (That can’t be the whole story, though. As I noted back in August, the workers-per-opening measure is improving even under less strict definitions of unemployment.)

The other possibility is that there are deeper, so-called structural reasons for the slow growth in wages, an issue I discussed in a bit more depth at the start of the year. Economists point to a range of possible explanations: globalization, technological change, declining unions, rising regulation. What they all share is that they won’t be solved through economic growth alone.