On Thursday, in “‘Where’s My Raise?’: American Workers Suddenly Realize The ‘Recovery’ Isn’t Real”, we once more took up the topic of America’s missing wage growth.
The idea that unemployment is trending lower while wage growth remains stagnant is perplexing to central bankers and although we solved this apparent mystery some three months ago, we understand that for PhD economists, it takes a while for things to sink in, which is why we're happy to explain once more that there is in fact wage growth in America — just not for 80% of the workforce.
We suspect this still hasn’t hit home for the central planner/ Ivory Tower crowd, but we’re at least encouraged to learn that Fed economists are thinking very “seriously” about this vexing problem and indeed, the WSJ has taken the time to lay out nine prevailing theories from some of the country’s ‘finest’ economic minds.
Without further ado, here are some proposed explanations for non-existent wage growth in America, straight from your favorite Fed researchers:
1. The labor market simply hasn’t healed from the 2007-09 recession, according to Chicago Fed economists Daniel Aaronson and Andrew Jordan.
2. Sluggish productivity growth and other long-term changes in the economy, such as workers’ declining labor share of overall national income, are restraining pay raises, according to Cleveland Fed economists Filppo Occhino and Timothy Stehulak.
3. Companies were unable to cut pay during the recession and later compensated by withholding raises during the expansion, according to San Francisco Fed economists Mary C. Daly and Bart Hobijn.
4. The large number of part-time workers, including people who want full-time work but are stuck in part-time jobs, is weighing on wages, the Atlanta Fed said in its most recent annual report.
5. Not enough people have been quitting their jobs, according to Chicago Fed economists R. Jason Faberman and Alejandro Justiniano.
6. People who have left the formal workforce but still want a job are holding down pay because they might rejoin the pool of job seekers, according to Fed Board of Governors economist Christopher L. Smith.
7. A shift in the makeup of the U.S. labor market to include more low-wage jobs is a factor, but not a big one, according to Atlanta Fed economist Whitney Mancuso.
8. The unemployment rate may not have fallen far enough yet to generate strong wage growth, Dallas Fed economists Anil Kumar and Pia Orrenius suggested.
9. Wage data may not tell a clear story about the state of the labor market at all, according to Richmond Fed economists Marianna Kudlyak, Thomas A. Lubik and Karl Rhodes.
So, in sum, the labor market may be stuck in a post-recession hangover, but it could also be that companies wanted to pay less during the downturn but couldn't (because workers are just looking for an excuse to quit during a quasi-Depression). Or, the demand for full-time work is so great that employers can afford to pay less (which directly contradicts suggestion number three), which is somehow compounded by not enough people quitting. Alternatively, wage growth could (somehow) be supressed by people who have given up looking for a job but who may decide to look later and although common sense suggests that more low-wage jobs may contribute to lower wage growth, that's probably not a "big" factor. Finally, it may be that unemployment simply hasn't fallen enough yet or, the data may just need to be double-adjusted.
We have another suggestion: perhaps there never was a recovery in the first place and still-depressed global demand is curtailing consumption, profits, and investment.
But admitting that would be to admit that trillions in QE has been an abject failure. That's Keynesian heresy and is never to be spoken of again.