The Wall Street Journal

Why Are Wages Low in the Growing Job Market?


The U.S. labor market has added jobs for 106 straight months. But wages aren't growing as fast as expected. WSJ markets reporter Akane Otani explains.

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- Right now in the U.S. labor market,
we're looking at two numbers.
The first is 106.
That's the number of consecutive months
the U.S. labor market has added jobs,
the most ever recorded. (pleasant orchestral music)
The second is 3.2%.
That's about how much wages have grown
each month in 2019 from a year earlier.
In a healthy economy, annual wage growth
is usually around 3.5%,
so despite record-breaking jobs growth,
wages aren't growing as fast as expected
and many economists aren't sure we're going to see
much of a pickup from here.
(pleasant piano and orchestral music)
Let's take a closer look at the numbers.
In theory, low unemployment should encourage employers
to raise wages since they're competing to retain workers
and also hire from a shrinking pool of employees,
but that's not what's happening.
Employee pay and benefits as a percentage
of gross domestic income fell to 52.7%
in last year's third quarter,
marking the fourth straight quarterly decline.
Compare that to when it was
as high as 59% in 1970 and 57% in 2001.
In other words, if workers commanded as much domestic income
as they did in 2001, they'd have nearly $800 billion more
in their pockets or $5100 per employed American.
Economists have identified some forces contributing to this.
One of the factors squeezing Americans
out of higher wages is automation.
Rapid advancements in robotics technology
and artificial intelligence are expected to displace
millions of jobs in coming decades
as routine tasks from driving trucks
to checking out at the grocery store become automated.
The share of tasks at risk for food preparation workers,
for example, is 91%.
Economists say workers in industries
where automation is taking over jobs
have less power to bargain for higher wages.
Analysts at the Brookings Institution
say less educated workers are especially likely
to have their jobs displaced by automation,
so it ends up being these workers
who have a harder time demanding higher wages.
Another contributing factor to slower wage growth
is the decrease in unions.
Union membership in 2018
is about half of what it was in 1983.
That means the power to bargain for higher wages
has decreased, and employment contracts
have become less favorable for workers.
For example, employment contracts have become
increasingly riddled with noncompete agreements.
Evan Starr, an economist at the University of Maryland,
estimates that roughly one in seven workers
making $40,000 or less signed noncompetes.
His research found that states that enforce the clauses
see lower wages across the course of workers' careers
than states that don't.
That's because noncompetes can discourage workers
in low-paying jobs from looking elsewhere
since they might not be able
to move from one company to another.
Even interns are increasingly being hit
by noncompetes, which can prevent them
from moving on from temporary jobs
to full-time gigs that would pay them more.
Another factor contributing to lower wage growth
is the growing gig economy.
With the growth of the freelance and gig economy,
there's more uncertainty for workers.
This gives them less leverage for negotiation
and fewer rights than full-time employees would receive.
In some cases, gig economy workers have been able
to push for bigger paychecks.
New York passed laws in 2018 that required Lyft and Uber
to pay drivers a minimum of $17.22 an hour,
but that's not been the case everywhere.
Globalization is another reason
why wage growth has been sluggish.
Because of increased competition from overseas
where wages are sometimes lower,
American companies are often reluctant
to raise wages for U.S. workers.
U.S. companies have been outsourcing jobs
to places like Mexico, China, and India
where they can produce goods for much cheaper.
That means U.S. workers have been left
with less bargaining power when it comes to their own wages,
the idea being if your boss can find a worker overseas
who's willing to take a much smaller paycheck,
why would they be willing to pay you more.
For example, Mexican vehicle assembly workers
made less than $8 a hour on average in 2017.
In comparison, the median wage for North American workers
in the auto manufacturing industry was 15 to $16 an hour,
so how do we predict wage growth will change in the future?
Is this slower growth expected to continue?
It's tough to say how this will play out,
but members of Congress are pushing for legislation
to increase the minimum wage, and recently,
the House did pass the Raise the Wage Act,
although people say it's probably unlikely
to make it through the Senate.
(pleasant orchestral music)

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