If the Economy is Doing so Great, Why is My Salary Not Going up?

Nancy Anderson
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As of early fall 2018, the U.S. economy is growing at its fastest pace in four years, and unemployment is at an 18-year low. So, why hasn't wage growth kept up with the economy? Discover seven reasons why your paycheck may not seem to big compared to what's going on with the booming economy.

1. Focus on Benefits

Rather than wage growth, companies focus on benefits to lure top talent. The costs of these benefits may weigh down the growth in salaries. Benefit costs grew 22.5 percent from 2001 to 2018, whereas wage costs rose just 5.3 percent. In other words, providing benefits has cost companies more in the past two decades versus having higher salaries.

2. Labor Productivity

Productivity, or the amount of work output for every hour of work, declined from 2011 to 2018. Labor productivity grew 2.1 percent from 1984 to 2004, but it fell to 0.7 percent from 2011 onward. Productivity is still increasing, just not as fast as it used to. Since wage growth increases with productivity, you might see wages actually decline in several industries. Companies may be keeping wages low so they can post more job openings to increase productivity without raising wages.

3. Corporate Wealth

Instead of profits filtering down to employees, more companies shift their profits to shareholders. Investors and CEOs have their salaries tied to stocks, acquisitions and mergers. In 2000, corporate income was responsible for 8.3 percent of America's total income, while wages accounted for 66 percent. In 2018, corporate income grew to 13.2 percent, while ordinary workers' wages fell to 62 percent of the country's income. If companies shifted that difference into higher wages, the wage growth for the average American would be an extra $3,400 per year.

4. Low-Wage Workers

Another factor pulling down wage growth could be low-wage earners re-entering the workforce. When the Great Recession hit in 2007 and 2008, it took a huge toll on the labor force. Some low-wage workers are just now getting back into the labor market, and that may bring down wage statistics for Americans.

5. Lower Union Membership

Union membership has declined dramatically since World War II. That actually affects non-union workers, since companies would keep wages higher to prevent workers from unionizing in the first place. During World War II, one in three workers belonged to a union. In 2018, that number is just one in 10.

6. Work Force Participation

The job market probably isn't as tight as statistics show. The unemployment rate of 3.9 percent only considers people participating in the labor market. Many people may not seek jobs because wages are too low. Eventually, companies may have to raise salaries to fill key openings and draw top talent. However, that could lower profits and scare away investors.

7. Market Forces

When American Airlines announced it was raising pilot's wages in 2017, the stock sunk 5.2 percent. An analyst complained that investors were being paid last and employees were being paid first. The stock market and the forces behind it seem to keep wages lower.

Wage growth may happen eventually, but it typically occurs in a tightly balanced U.S. economy. If wages go up too much, companies have to charge more for products, thus reducing the buying power of workers.

Photo courtesy of JicKaro at FreeDigitalPhotos.net


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