Blame low wages on slack

Nancy Marshall-Genzer Aug 26, 2015
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Blame low wages on slack

Nancy Marshall-Genzer Aug 26, 2015
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A new report from the Congressional Budget Office is shedding some light on why wages aren’t going up, even as the unemployment rate goes down. 

Blame it on slack, the CBO says. That is, extra workers in the labor market — people who’ve given up looking for a job. 

These extra workers aren’t officially counted as unemployed because they’re not looking for work. They might be boomers who are pushed toward an unexpectedly early retirement. Or millennials who decide to stay home with the kids.

“They’d like to be working and if they really thought they could pick up the phone and get a job they’d be back in the labor force,” says Chad Stone, chief economist at the Center on Budget and Policy Priorities. “But we’re not to that point yet.”

So they stay home. The CBO says this pool of would-be workers is bigger than it thought. Maybe because the severity of the recession made it really hard to get back into the workforce.

“The CBO seems to be acknowledging that there’s more slack than expected based on previous recessions,” says Jonathan Rothwell, a fellow at the Brookings Institution. “So there’s this unexplained slack.”

The effect of this slack, though, is clear. Economists say it’s one factor keeping wages down. Employers know there’s this backbench of workers, waiting for a job. 

“When they have a lot of folks to choose from there’s very little upward pressure on wages,” says Marick Masters, a professor of business at Wayne State University.

One bright spot in the CBO report: It says there’s less stigma against the longterm unemployed. Because so many people lost their jobs during the great recession, and found it hard to get new ones. The report says they could return to the workforce in coming years.

 

 

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