Sluggish Wages Hurt the Unemployed
Business + Economy

Sluggish Wages Hurt the Unemployed


The real hourly wages of U.S. workers were stagnant between July 2013 and July 2014, the Bureau of Labor Statistics reported on Tuesday – news that suggests recent job gains have not tightened up the labor market appreciably.

Real wages refers to the purchasing power of money earned after adjusting for inflation. The BLS reported that people earned slightly more money in July 2014 due to an increase in hours worked, but hourly compensation remained flat.

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“Real average hourly earnings was unchanged, seasonally adjusted, from July 2013 to July 2014,” BLS said in its release. “The unchanged real average hourly earnings, combined with a 0.3 percent increase in the average workweek, resulted in a 0.3 percent increase in real average weekly earnings over this period.”

This is bad news for the millions of Americans who remain unemployed as the economy continues its struggle to shake off the effects of the Great Recession.

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Despite a six-month string of jobs reports that show the economy creating more than 200,000 new jobs per month, the unemployment rate remains high, at 6.2 percent nationally. The lack of upward pressure on wages suggests that employers continue to have the upper hand when it comes to negotiating compensation with new hires, presumably because there are many applicants for most job openings.

Part of what appears to be happening  is that workers who left the labor force entirely during the worst years of the recession are returning to the ranks of those looking for work. Some economists had assumed that many of these so-called “discouraged” workers would simply never return to the labor force, and would therefore have little effect on wages.

Chief among those who predicted that they actually would return to the labor force was Federal Reserve Board Chair Janet Yellen. The Fed, which is slowly winding down its massive stimulus program, has promised to keep interest rates low for a considerable amount of time, and one of the likely drivers of the central bank’s eventual decision to raise rates will be the presence of hourly wage growth.

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The lack of wage growth over the past year also helps make the case against what business groups have identified as a “skills gap” that leaves hiring managers unable to find qualified workers. Basic economics says that if workers with certain skills are in high demand and short supply, wages would go up. However, according to BLS data, even in sectors of the labor market where wages increased slightly, they grew at a rate considerably below the rate of inflation.

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