Good Question: Why Has Pay For U.S. Workers Stayed Relatively Flat?

MINNEAPOLIS (WCCO) — New numbers from the Labor Department show wages in the U.S. are growing at about 2.5 percent a year. That’s below the 3 to 3.5 percent economists consider typical in a healthy economy.

So, why has pay for U.S. workers stayed relatively flat? Good Question.

This is not a topic where all economists agree, but Ernest Owens, a professor of management at the University of St. Thomas Opus College of Business points to a few factors.

First, he says productivity is up among workers, but that doesn’t mean the new wealth is spread evenly.

“We say wages, we got to remember we got two different populations here,” Owens says. “Talking about the average laborer, wages are going down, the average CEO, wages are going up dramatically.”

He says it’s the bottom 90 percent of workers whose wages have remained flat.

Alan Benson, a professor at the Carlson School of Management, agrees. He says the wages of higher-demand workers, like those in technology fields with college degrees, have been rising.

Some economists argue employees are still fearful of asking for raises or changing jobs in light of the 2008 recession.

“I think for a long time we weren’t used to asking,” says one Minneapolis man. “So, maybe we’re just out of the habit.”

Generally, when the unemployment rate is low, wages will increase because there is more of a demand for good workers, but Benson says that just hasn’t happened and economists aren’t exactly sure why.

Owens suggests it’s partly due to globalization.

“In the ’80s, the United States had only one international competitor, it was Japan,” he says. “In 2017, you can go anywhere in the world, those are our competitors.”

He says there are more people now willing and able to perform jobs at lower wages.

Mick Sheppick, also a professor at the Opus School, points to employers’ cautiousness. He says the majority of businesses in the U.S. are small and in the post-recession era, they are still risk averse to pay raises.

In 2014, Janet Yellen, Chair of the Federal Reserve, also posited a theory called the “pent-up wage deflation” theory. In it, economists argue wages were already seemingly high during the recession. Inflation was low at the time and employers didn’t cut wages, but rather fired employees to cut costs. Therefore, employers didn’t feel as though they needed to raise wages in the post-recession era.

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