Knowledge@Wharton: "The Economy Is Coming Back — Why Wages Are Stuck in a Rut"
From K@W:
An early spring looks in store for workers with unexpected good news
from the U.S. Labor Department: In January, unemployment clocked in at
5.7%, down from a post-financial crisis high of 10% in October 2009.
Over the last three months, employers hired at the fastest pace since
1997. Another positive sign: After years of stagnant wage growth,
average hourly earnings rose by 0.5%, the biggest gain in six years.
Though small, this uptick in wage growth raises the question of
whether economic recovery might finally bring higher pay along with it.
In February, Wal-Mart Stores announced a pay raise for its U.S. workers
to $10 an hour, above the $7.25 an hour federal minimum wage, and other
companies, such as Starbucks, Panera Bread Co. and Aetna have also
raised wages at the lower rungs. That’s good news, when average real
wage growth has hovered around zero among developed countries since the
end of the financial crisis, according to a 2014 report by the
Organisation for Economic Co-operation and Development, the
International Labor Organization and the World Bank Group. G-20
countries overall have averaged only 1% to 2% real wage growth a year,
most due to wage increases in China, according to the report.
Workers should remain skeptical of any dramatic change afoot on the
wage front, however. The economic recovery taking hold at least in the
U.S., if not in other major developed economies, may enable workers to
claw back jobs, but dramatically higher pay is a much more tenuous
prospect. The availability of still more U.S. workers on the sidelines
ready for hire, along with an eager supply outside the U.S., continued
displacement of workers via technology, and weaker worker protections in
the law will allow employers to hold the upper hand for some time to
come, experts say....MORE
...These phenomena call into question previous ideas in economics.
“Increasing productivity does not necessarily lead to higher wages for
the average worker,” says Janice Bellace,
Wharton professor of legal studies and business ethics. “Something else
has to happen for the gains to be distributed evenly.” Since 2010,
productivity across G20 countries started rising from the recession
slump, but wages stayed stagnant, according to the OECD report. Indeed,
says Capelli, “productivity increases don’t have to be shared with
labor. Who gets it all depends who has the bargaining power, and labor
hasn’t had it.”
In his book, Piketty takes a shot at the late Nobel Prize-winning
economist and former Wharton professor Simon Kuznets and the so-called
Kuznets curve for predicting a rise in inequality at early stages of an
economy’s development and then a decline as economies grow. But in a
recent article, Sangheon Lee, special advisor to the deputy director for
policy of the International Labour Office, points out that Kuznets did
not believe inequality would decline automatically as a law of
economics, but rather as a result of political choice, as lower-income
urban workers gain more power....
