Why Wages Appear to be Stagnant as the Economy Grows?

Ever since the 2008 recession, there has been an enormous runup in the stock market, accelerating growth in GDP, and a steady increase in job growth. However, despite these encouraging economic trends, wages are not keeping up.

Wages have simply not kept pace with inflation. In the United States, wages after adjusting for inflation have barely moved for over 4 decades. Despite growth in wages, notably in August 2018, inequality has peaked during the coronavirus pandemic.

Growth in productivity, the output from every hour of work, has been declining in the US, as well as in advanced economies globally.

40% of Americans struggled to pay for housing, utilities or food in the last year. Close to 50% of Americans have no retirement savings, and 63% don’t have $500 in cash to manage emergencies or other significant expenses. 70% of college graduates have $15000 or more in outstanding loans in their first year of work. Companies that hire minimum wage workers have built programs to pay people everyday to better manage cash flow at the expense of workers.

Corporate managers are averse to raising wages because once they are raised, it’s hard to take them back down. And in the inevitable time of a recession or slowdown, companies will be stuck with a high labor costs. Companies are willing to pay high bonuses, but they don’t want to raise the base pay of workers. Companies hold huge cash reserves but prefer to pass on profits to shareholders instead of paying its employees more.

A key problem appears to be the way that labor is viewed by managers. Workers are seen as costs, not as investments, whereas it is evident that higher wages attract better talent, which every corporation searches for. CEOs and CFOs must understand that employees provide outsized value to a company, and if they are considered assets rather than expenses, they may find that the return on higher pay is greater than anticipated.