Why Wage Growth Has Been So Slow in Recent Years

 

My last post pointed out that there appears to be an inverse correlation between tax rates and economic growth in developed countries.  In particular:

  • Tax levels in the U.S. have stayed relatively constant since 1965 while they have grown significantly in other O.E.C.D. countries.
  • GDP, on the contrary, has been growing faster in the U.S. than it has in these same countries.
  • Median wages, while growing more slowly in the U.S., are still much higher than in the other major O.E.C.D. countries.

A new report from the Brookings Institute analyzes the factors which have contributed to relatively slow wage growth in the U.S.


For example:

  • Labor productivity has been growing faster than hourly compensation since the mid-1970s.

  • Benefits have grown much faster than wages in recent years.

  • Labor’s share of income, compared to capital’s share, has been dropping in recent years.

  • Wage gains have been greater in the higher wage quintiles.

  • Domestic manufacturing output has increased even as manufacturing employment has decreased.

  • Entrepreneurship (i.e. new business formation) has declined in recent years even though it may now be starting to pick up.

  • Labor market slack has declined since the Great Recession though some still remains (measured as the share of the work force that works part time for economic reasons).

  • Recent labor productivity growth has been especially slow, restraining wage growth.

Conclusion. As everyone knows, slow wage growth is a highly contentious issue in the U.S. In addition to being a fundamental measure of a society’s wellbeing, it played a central role in the outcome of the 2016 Presidential election.
What can and should be done to speed up wage growth in the U.S.?  Stay tuned!

Follow me on Twitter 
Follow me on Facebook 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s