Workers: the poor orphans of the US economic boom

  • Economy
  • Wednesday, 07 Jan 2015

Protesters march through the streets demanding a raise on the minimum wage to $15 per hour on Dec 4, 2014 in New York, US. In constant dollars the average hourly salary of US$20.67 in the US is barely higher than the US$19.18 of 1964 - AFP Photo.

WASHINGTON: It is one of the contradictions of the US economic boom: the unemployment rate has fallen to the lowest level in six years, but workers’ wages have remained almost flat.

The anomaly is troubling enough that it has sparked questions about whether the economy’s rebound from the 2008-2009 recession is all that strong.

“Why is wage growth so slow?” the Federal Reserve’s San Francisco branch asked in a research study Monday, calling the stubbornness of wages amid surging growth “unusual behaviour”, economically speaking.

In theory, the sharp fall in the jobless rate from 10% in October 2009 to 5.8% today should have sparked firm rises in the pay for the average American worker. With the supply of available workers falling, they should be in the position of forcing employers to pay more.

But the reality is that paycheques have barely risen, measured against inflation.

“In real terms, wages have been about flat, growing less than labor productivity,” said Fed Chair Janet Yellen last August, and nothing has changed since then. In November, the annual growth of wages was just 2.1%, compared to the 3.9% rise in 2007 before the crisis.

According to the San Francisco Fed study, some 15% of Americans saw no wage gain in the year to November 2014, compared to 12% in 2007.

Even while celebrating the fall in the jobless rate, the White House itself pointed to the problem in December.


“There is more work to be done to further boost wage growth and address longer-standing challenges around both the quality of jobs and the growth of wages,” it said.

Indeed, in constant dollars the average hourly salary of US$20.67 is barely higher than the US$19.18 of 1964.

The problem is worse for those workers on the lower ends of the pay scale.

Since 2000, the 10% of workers on the bottom of the scale have seen their weekly paycheques shrunk 3.7% when measured against inflation, according to a recent study by the Pew Research Center.

Those at the top of the scale of wage workers saw gains of 9.7%.

“For most US workers, real wages – that is, after inflation is taken into account – have been flat or even falling for decades,” said Pew’s Drew DeSilver.

The one comforting aspect is that inflation remains weak, not eating away more of workers’ household purchasing power.

According to a number of experts, the contradiction of economic growth and stagnant wages exposes certain flaws in the jobs market.

“The labour market is much weaker than it appears to be just by looking at the unemployment rate,” said Kelly Ross, deputy director of the policy department at the AFL-CIO labour federation.


The market is not as tight as the official jobless rate suggests. The official jobless numbers do not include the rise of people stuck in temporary jobs and those who have dropped out of the jobs market in discouragement.

The Economic Policy Institute in Washington estimates those would add another 5.7 million Americans to the official unemployed number of 9.1 million.

The rise in the power of finance and capital in the US economy and the weakness of workers’ unions has also contributed to the problem, according to Ross.

“With the decline of unions, we don’t have the ability to translate higher profits into higher growth in wages,” he said.

A rise in the official federal minimum wage rate, stuck at the current level since 2009, could help push paychecks higher. But the administration of President Barack Obama has faced tough opposition to such a move in the Republican-dominated Congress.

An increase “would have a limited effect given the low minimum wage rate,“ Ioana Marinescu, an economist at the University of Chicago, told AFP.

But a spark to wages could come from the strength of the economy and the rising optimism of employers about the future. According to Careerbuilder, the online job search site, 82% of businesses expect to raise wages this year, compared to 73% last year.

“There is always a delay between the fall in unemployment and the rise in salaries, and it appears that this period of adjustment is near its end,“ predicted Marinescu. – AFP

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