Why Your Wages Aren’t Going Up

Even as the unemployment rate goes down

That squiggle at the right is wages going sideways. Source: St. Louis Fed.

Unemployment is down to 5.4%! Yay!

That was the summary of last week’s unemployment report. Yet the two-track “recovery” — about to enter its seventh year — continues. Average hourly wages increased by only 0.1% in April and 2.2% for the past twelve months, which amounts to basically nothing when you take inflation into account.

This is what the new normal looks like. Wages barely rise during periods of economic “expansion” (you know, the opposite of recession), then fall when unemployment spikes during a recession. In the long run, that means that average real earnings actually go down, and household income can only keep up if people work more hours. Yet the number of full-time jobs is lower today than it was before the financial crisis.

John Komlos diagnosed the causes of wage stagnation two months ago in response to the March unemployment report and, unfortunately, not much has changed since then. In summary:

“As long as there are still roughly 17 million workers underemployed, the nearly 300,000 jobs created last month are not going to make much of a dent in the immense amount of surplus labor available to corporations. …
“Plus, let us not forget that a lot of people left the labor market after the financial crisis began. The participation rate even among working-age adults (25–54 year olds) who did not take early retirement declined by 3.6 percent.”

The rest of Komlos’s article is here.

James Kwak is, among other things, an associate professor at the University of Connecticut School of Law. Find more at Twitter, Medium, The Baseline Scenario,The Atlantic, or jameskwak.net.