Can We Get Wages Rising?

In the United States, wages for people in middle-paying jobs and below have been flat for more than three decades. This has gone on for so long now that we should see it as the new normal, rather than a temporary aberration. There are a host of causes: intense product market competition (whether global or domestic), shareholders obsessed with short-term profits, mechanization, the shift from manufacturing to services, firms’ ability to offshore, “pay for performance,” immigration, stagnant educational attainment, weak unions, and a flat minimum wage.

I suspect (here, here) that some of the left’s chief strategies for solving this problem — reviving manufacturing, strengthening unions, and full employment — aren’t likely to be achievable. Indeed, I don’t see any reason for optimism about wage growth for the lower half going forward. I therefore think it’s worth exploring alternative ways to ensure that household incomes and living standards can keep pace with economic growth.

Jared Bernstein has some characteristically thoughtful comments. His main point is that we shouldn’t give up on rising wages. He thinks in particular that there’s a reasonable chance we can get the labor market tight enough to push wages up, as happened in the late 1990s. He and I agree that much hinges on the Fed’s approach. Here’s Jared:

The monetary authorities will pursue full employment but the question is how will they define it? If they set it too high (i.e., if they assume a NAIRU that’s too high), we’ll fail to create the wage pressure Lane cites above. But remember, the Federal Reserve is not a “structural trend” like the shifting of manufacturing output from advanced to emergent economies. They are a policy making body and are not immutable nor impervious to change. For Keynes’ sake, it was Greenspan of all people who presided over—in fact, accommodated—the full employment period of the latter 1990s. And post-crash, Bernanke and Yellen have been, in word and deed, acting quite differently than Lane’s post-crash supposition above. So Lane might be right but I wouldn’t make that assumption and progressives should fight back hard on this one.

I agree we should try to get the Fed to take more seriously its full employment mandate. That would be an enormously beneficial policy shift. But it’s a difficult battle, even if Janet Yellen becomes the next Fed chair. And what the Fed has done in this crisis isn’t necessarily a signal of what it will do if and when the economy gets close to full employment. There, I think our best guide is the past. The late 1990s, when Greenspan chose to keep interest rates low despite an unemployment rate that reached below 4%, was very much the exception rather than the rule.

Let me put in this way: Given that we’ve had a labor market tight enough to push wages up in only a few of the past 30-plus years, is it wise to see this as a likely solution to wage stagnation?

Ultimately, though, I think any disagreement between Jared and me here is one of emphasis. Jared wants us to keep seeking ways to get wages rising again. I do too, but I’d like to see more exploration of non-wage paths to rising incomes and living standards.

About Lane Kenworthy 36 Articles

Affiliation: University of Arizona

Lane Kenworthy is a Professor of Sociology and Political Science University of Arizona.

He studies the causes and consequences of poverty, inequality, mobility, employment, economic growth, and social policy in the United States and other affluent countries.

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