Where are the Wages? - Modern Distribution Management

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Where are the Wages?

Tight job market doesn't translate to higher pay for employees.

While the unemployment rate edged up to 4.4 percent in June, the latest employment situation report was a beacon of a strengthening economy. Employers added 222,000 jobs in June, and the Bureau of Labor Statistics revised the figures for April and May up 19 percent and 10 percent, respectively.

In addition, the number of marginally attached persons – those who want and are available for work, but haven't looked in the four weeks preceding the reporting period – fell nearly as much as the jobs added (197,000). And roughly two-thirds of the people who remain marginally attached reported not searching for work because of reasons like school attendance or family responsibilities.

This points to a healthy job market – full employment is generally considered to be around 5 percent – which would usually translate into increased average wages. But the latest report also shows lackluster gains in that area. Average private nonfarm hourly wages only rose 4 cents.

Post-Great Recession, we talked a lot about a jobless recovery. We have the jobs now, so why aren't wages rising?

It's a question being raised in many circles: economic, political, financial. Unfortunately, there's not one simple answer, but rather it's a convergence of circumstances. Two critical components, however, are the younger workforce and the lingering shadow of unemployment, according to an article from Inc. Younger workers have less experience and, thus, generally garner lower wages (contrary to the perception that they have unreasonable pay expectations).

But there's also a significant part of the workforce that remembers the Great Recession and have been hesitant to ask for a raise. And as a result, wage growth is stuck in stagnation cycle. As Mark Zandi, chief economist for Moody's Analytics, noted in the Inc. article: "People are out of practice when it comes to asking for higher pay."

That's why the re-engagement number is so critical here; more people are returning to the workforce. More people are competing for jobs. Expectations for increased wages is rising, according to the latest consumer confidence index from The Conference Board (although the percentage of respondents expecting lower wages also inched up).

In general, workers are starting to expect more – which should translate into higher wages overall in the coming months. Are you prepared for that shift?

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