Why You Probably Haven't Gotten a Pay Raise

The economy is booming. Or so we read. It's been five years since the end of the recession, let alone the time elapsed since the financial crisis that precipitated it. It certainly seems like more stores and restaurants are opening, and the mind-boggling amounts demanded for rents or house purchases suggest that someone out there must be doing pretty well.

So how come a majority appear to feel that they are not doing as well as they used to?

Well, for starters, because they're not. If you are an average American (whatever that means these days) your household income is lower than it was when the recession ended. And if you have a sense of history, you understand that this is a trend with some legs - about thirty years worth.

The reasons for this have to do with global competition (yes, people with good educations who make a tenth of what you do will have an effect on wage rates) and technology (and yes, you can be replaced by a machine and/or the algorithm that drives it), but as the following article explains, it is the result of those two factors that is probably preventing the increase in wages.

The outcome of all those financial, global and technological influences is that there are too many people available to take the jobs that remain. Attempts to shift blame to the working population - 'there are thousands of good jobs going begging because there are not enough qualified or skilled or interested applicants' - are false, designed to deflect attention from the diversion of compensation to ever fewer recipients.

To some extent the general lack of pay increases is due to cyclical economic forces. But the reality is that most people havent gotten a raise because in almost all western democracies they haven't demonstrated that they care enough to vote and when doing so, to elect people who will force the changes in public policy necessary. JL

Catherine Rampell reports in the Washington Post:

The main reason that wages haven’t risen is that the job market is not nearly as “tight” as the headline unemployment rate makes it appear.

Why haven’t you gotten a raise?

In the past few years, corporate profits have climbed ever higher. Legions of unemployed people are now finding gainful employment, with joblessness finally falling below 6 percent. Meanwhile, if you’re anything like the average American worker, your pay has been flat, just barely keeping pace with inflation. If you’re in the very middle of America’s income distribution, in fact, your overall household income is lower today than it was when the recession officially ended more than five years ago.
This is all a bit of a puzzle.Usually unemployment declines go hand in hand with raises, after a slight lag. As the pool of idle workers shrinks, employers must offer higher pay to attract, and retain, labor. This time they are not, even though employers are increasingly complaining about the kinds of talent shortages that usually lead to upward wage pressures: Nearly half of the firms that filled or attempted to fill job openings in the past three months said there were “few” or “no” qualified applicants available, according to a National Federation of Independent Business survey.
There are a few possible explanations behind the missing wage growth.
One has to do with the mix of jobs being created. Some research has shown that jobs lost during the recession were disproportionately in high- and mid-wage industries (e.g., construction), while those gained in the recovery have been concentrated in low-wage industries (e.g., retail). Perhaps wage stagnation is just an illusion, created by this shift. The Labor Department’s Employment Cost Index, however, strips out the influences of changing industry and occupational composition and still shows relatively flat wages.
Another potential culprit involves runaway health-care costs, which might eat into other categories of employee compensation, including wages. But growth in benefit costs (including health insurance) has slowed dramatically in the past few years, and as a result workers’ total compensation has also remained pretty flat.
Then there’s the Spoiled Boss hypothesis.
For years jobless workers were desperate to find something, anything, to pay the bills, and they lowered their demands for what that something-or­anything job should disburse. Perhaps bosses got spoiled, expecting bargain-basement deals on wages to continue indefinitely, and have been reluctant to offer higher pay even when they can’t find qualified job applicants. This attitude doesn’t seem sustainable, though, unless a lot of companies made irreversible capital investments predicated on permanently low wages (e.g., buying manned checkout counters rather than self-checkout machines).
Maybe it’s not bosses but frightened employees who are really to blame. The main avenue through which workers get raises is job-hopping; right now, though, the share of workers voluntarily quitting their jobs remains depressed, even though job vacancies are back to pre­recession levels. Maybe risk-averse, grateful-to-just-be-employed workers have stopped looking for competing job offers, and the resulting decline in “churn” is weighing on their paychecks.
I suspect the main reason that wages haven’t risen, though, is that the job market is not nearly as “tight” as the headline unemployment rate makes it appear.