WaPo's Samuelson: Lack of Rising Wages 'Country's Central Economic Challenge'

Wednesday, 03 Sep 2014 11:22 AM

By Michael Kling

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An important piece of the supposedly improving economy is missing: rising wages.

Hourly wages have increased approximately 2 percent a year since late 2009, but when adjusted for inflation, wage increases are flat — or even worse. According to the Economic Policy Institute, median hourly wages adjusted for inflation, or real pay increases, dropped 0.4 percent from 2007 to 2014.

Unemployment is down to 6.2 percent from 7.3 percent a year ago and its peak of about 10 percent in 2009. But the effects of the recession still linger.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Some experts fear stagnant wages may be here to stay.

"What's ultimately at stake is the Great Recession's lasting effect on labor markets," writes Washington Post columnist Robert Samuelson. "Are they in the process of reverting to their modern role, promoting steadier employment and higher living standards? Or has there been a major break from the past, ushering in a harsher, more arbitrary system whose outlines are still faint?"

Some economists say the tide is turning as unemployment falls and job openings increase. Demand for workers, they say, will soon kick off rising wages along with inflation.

Others don't buy that scenario. And their arguments seem stronger, Samuelson believes. For instance, the U-6 jobless rate, which covers the officially unemployed, discouraged workers and part-timers who want full-time jobs, was 12.2 percent in July. That's down from its 17.2 percent peak but still substantially higher than 2007's 8.3 percent.

"A wage explosion seems unlikely; companies were too traumatized by the Great Recession to let costs get out of hand," Samuelson concludes.

"The poor performance of American workers' wages in recent decades — particularly their failure to grow at anywhere near the pace of overall productivity — is the country's central economic challenge," states a new report from the Economic Policy Institute.

Most of the wage growth in recent decades has gone to the highest-income earners, the report finds.

Government policies and business practices are to blame for stagnant wages, the paper states. For instance, companies often misclassify workers as independent contractors to avoid paying payroll taxes and benefits, and just-in-time scheduling creates erratic and sporadic worker schedules, which makes finding childcare or a second job difficult.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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