Thursday, December 08, 2011

Despite the Drop in the Unemployment Rate, Wages Are Still Not Rising | The Curious Capitalist | TIME.com

Illustration by Alexander Ho for TIME; Getty Images
Illustration by Alexander Ho for TIME; Getty Images

The cost of fat is rising faster than your paycheck, about five times as fast. And it’s not only the price of butter and oil at the supermarket that are making your pay increases – if you are getting any at all – look slim. In the past year, the prices of clothing, public transportation and even trash collection are all up more than the earnings of the average American worker.

In most times you would expect wages to rise in line with prices. As someone pays more, someone else makes more. Yet, while consumer prices are up 3.5% in the past year, wages have only risen about half as much. The result is that effectively in the past year we have all received a pay cut. And that trend has continued even as the job market has recently been improving.

(MORE: How To Land a Dream Job in A Bad Economy)

Back in January, I predicted that wages, even after inflation, would fall this year, as more and more people re-entered the workforce at often reduced salaries. So I was off, but not by much. Wages did rise, slightly, but only because the job market turned out to be worse than I thought it would. Fewer people landed jobs than expected, somewhat relieving the statistical drag on average wages.

That might now be changing. In November employers added 120,000 jobs and the unemployment rate dropped to its lowest point in two and a half years. Yet, pay dropped as well. Josh Sanburn over at TIME’s Moneyland has a nice post about what you can do in this environment to try beat the wage slump. As more people, hopefully, re-enter the workforce, average wages are likely to continued to fall. Recently, the reason that has been happening is because a lot of the job gains have been in areas that tend to have lower salaries. For instance, of the 120,000 increase in payrolls last month, 50,000 of the jobs were in retail. Temporary hires were up as well, which is a good leading indicator of where the job market is headed, but those positions tend to be relatively low paid as well.

(MORE: How to Make the Most Out of Internships)

But slow or no wage growth is part of a larger trend. Earlier this year, Heidi Shierholz and Lawrence Mishel of the left-leaning think tank the Economic Policy Institute wrote a paper called The Sad But True Story of Wages in America. Basically, the economists found that if you go back to 1950, you see that for about 30 years productivity and wages move together. But starting in the 1980s that changes. Productivity begins to really take off. Wages, not so much. Since then the gap between wages and productivity has only increased. Overall, Shierholz and Mishel calculate that from 1989 to 2010, productivity grew 3.5 times as fast as wages. Shierholz and Mishel don’t exactly prove why this has occurred. Basically they fault Washington:

Rather, the focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions. These policies have served to erode the bargaining power of most workers, widen wage inequality, and deplete access to good jobs.

Optimistically, one would hope that this trend, like most others, will reverse, and wages will see some steep increase to get back in-line with productivity. And perhaps that would have happened if not for the recent recession. But with so many people out of work, just looking to get a pay check again, it’s hard to see a rebound in wages coming any time soon.

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