Financial Advice for Retirement, Social Security, IRAs and Estate Planning

The Wage Growth Conundrum

November 5, 2018

Normally at this stage of the economic cycle, wages are rising rapidly. Most labor market numbers are at their best levels in 40 years or longer. Yet, wage increases are fairly modest by historic standards, though they are significantly higher than a couple of years ago.

This article points out that after inflation, real wages are hardly increasing. The article offers some explanations for the wage conundrum, but it doesn’t really have an answer. The key point that isn’t made in the article is that much of the stock market surge has depended on earnings growth, and an important element of earnings growth is that companies are able to produce more without having to pay significantly higher wages. That increases profit margins. As wage growth increases, earnings growth is likely to slow.

There are some signs of life. Just like minimum wage increases could have helped inflation-adjusted numbers in 2015 and 2016, major employers such as Amazon raising its minimum wage to $15 per hour could have ripple effects that will be positive for workers.

The big question is this: Will this wage recovery just take more time? Will baby boomers retiring for good lead to full employment and more upward pressure on pay?

 

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