As Americans pause for Labor Day, workers can be forgiven for wondering: Will all the talk of an improving job market ever translate into rising wages?
It’s been five years since the official end of the Great Recession, as reckoned by economists.
The job market has been improving – with employment growth solid if unspectacular. The unemployment rate has been falling.
There have even been pay raises. But when measured against inflation in consumer prices, the average hourly wage for workers has flat-lined over the 12 month ended in July, according to the Labor Department. Performance for the year before that was the same – with wages struggling to match a rising cost of living.
On one level that’s disappointing but not shocking. Wages don’t always rise faster than inflation, even in a good economy. And it can take a while after a recession for the labor market to tighten, so that employers feel pressure to pay more as they compete for workers.
But some measures suggest that the depth of the 2007-2009 recession, coupled with the slow job recovery since then, has made it even harder than usual for workers to get meaningful raises.
AFL-CIO leader Richard Trumka points to a stagnant economy – and notably the lack of real pay hikes – as the “central issue” for American families right now. That’s how he put it at a breakfast with reporters, hosted by The Christian Science Monitor, just before Labor Day weekend.
Many economists say that, as the economy continues to gradually strengthen over time, the wage picture should improve. But they are divided over how quickly that will occur.
In many past recoveries from recession, wage growth was stronger, judging by Census data on household incomes. The average income for the middle fifth of US households, for example, rose nearly 11 percent during the five year period from 1983 to 1988, after a recession that ended in 1982.
And after a recession that ended in 1991, that middle-class group saw its average income rise more than 4 percent by 1996. If that still sounds modest, note that these are “real” (inflation adjusted) numbers. So such gains are a genuine boost in the standard of living.
Whether it’s because of global competition or failed domestic policies or some other causes, the general upward trend of middle-class income seems to have stalled in recent years. In fact, average incomes for all five “quintiles” of households, from the poorest fifth to the richest, were lower as of 2012 than in 2000, according to the Census data.
Federal Reserve Chair Janet Yellen is watching the wage issue closely. She has stated the goal of encouraging full employment, with the wage growth that comes with it, even as she also has to watch against the risk of rising inflation.
Ms. Yellen said in a recent speech that “in real terms, wages have been about flat” over the past several years, with little sign of acceleration even now. The silver lining, from the Fed’s standpoint, is this means there’s little wage pressure adding to the overall inflation rate. The Fed generally raises interest rates when it’s worried about inflationary pressures on the rise.
President Obama and other politicians have called for higher minimum wages – at the federal or local level – as one way of encouraging a pay boost for workers.