How the U.S. might get to wage growth

Dan Gorenstein Nov 7, 2014
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How the U.S. might get to wage growth

Dan Gorenstein Nov 7, 2014
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The economy added 214,000 jobs last month, and the unemployment rate ticked down to 5.8 percent, according to Friday’s federal jobs report

The fly in the ointment was the same fly that’s been in the labor market ointment for years now: Wages are stuck.

Average hourly pay rose three cents last month. And to some extent this all makes perfect sense. Economists say after a recession there’s a natural order to a recovery.

Wharton economist Kent Smetters says to think of a recession like a monster fire that burns down the forest where,“you get a lot of job growth, that’s the trees growing up. But as they get taller they are competing for sunlight and that’s kind of the wage growth.”

Smetters says in this most recent jobs report wage increases are barely keeping up with inflation. But in some industries that’s changing.  

“Trucking and manufacturing as well as some of the professional services like lawyers and accountants you are seeing higher wage growth,” he says.

Smetters thinks wages haven’t come around yet, in part because the recession left so many without a job. Smetters bets it could be another nine months before enough people flood back into the workforce to push wages up. If that does happen, “profits would not rise as fast in the future as they have in this economic recovery,” says Brookings Institution economist Gary Burtless.

And remember, Burtless says, business profits have hit record highs almost every quarter. Maybe it’s time for a bigger share to go to workers, he says.

“If they had more spending power that could boost consumption and boost the reason for employers to add to their pay roles because they can sell more stuff, more easily,” he says.

Burtless says while plenty of folks in Washington keep banging the job growth drum, voters sent an altogether different message when they supported every minimum wage hike on the ballot.

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