“Hundred dollar car note, two hundred rent; I get a check on Friday, but it’s already ready spent.”
— from “Workin’ for a Livin’,” as performed by Huey Lewis and the News
In spite of low unemployment and a consensus that an economic recovery has taken place, wage growth continues to stall. If the economy is good, where are the high-paying jobs that can support a family?
Unemployment is at its lowest level in 17 years and is likely to remain below 4 percent for the foreseeable future. Wage growth has often been a byproduct of tight labor markets: employers have to pay more to get good employees, or for that matter, any employees, because there is such competition for labor. But while wages have grown at over 3 percent per year since 2015, the rate of growth has stalled significantly. Wage growth was at its lowest level since the Great Recession (under 2 percent) in 2010, and has increased somewhat since then, but remains far below the 5 percent growth level achieved by the economy in 2000.
The Federal Reserve is raising interest rates periodically this year based partly on these low unemployment numbers. Simply stated, wage growth has traditionally accompanied low unemployment, and raising interest rates is a hedge against inflation.
So why aren’t paychecks getting considerably larger? Let’s consider two aspects of our current economy: an aging populace and hyper-globalization.
A large number of potential employees out there are growing older. But many business owners and employers are hesitant to hire and pay large salaries to older workers. We have shorter runways than our millennial peers. The median age in the U.S. is now over 38, more than a year older than it was only four years ago. The alternative, of course, is to hire to a younger person, a person with less experience but who may be willing to work for less. So unemployment remains low, but actual wage growth is stymied.
Secondly, international business competition is exerting forces on our economy that we haven’t experienced since the late 1800s. When a foreign company makes a competitive product, while paying its workers far less than U.S. workers are paid, it’s difficult for American businesses to compete on price. So business owners save money by paying employees less and then pass those savings on to consumers in order to remain competitive in the international marketplace.
There’s always been international business competition, but increasing hyper-globalization is creating a larger impact on our economy, and on the level of our wages, than at any time in American history. There’s just no way around it.
It’s complicated and confounding. The economy continues to improve; wages remain relatively flat.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.