WAGE STAGNATION Kate Moodycliffe

WAGE STAGNATION

Since the 1970s, real wage growth in the USA has decelerated dramatically in relation to its economic growth. Productivity has grown about 85% since 1979 in contrast to an average 5% of overall wages. Moreover, this is especially apparent in the lower and middle classes, where wage growth has been between 3% and 4% in the last 20 years, compared to a 15% growth in the upper middle class.

So, what exactly are the causes of the lack of growth? Some would say it is a direct effect of Globalisation and the low-priced imports it has brought from countries such as China, or that technology has made corporations more capital and machinery orientated, thus replacing many opportunities for employment. Although this may be partly true, it is prompted by a vast combination of concerns which are still slightly unclear. One of these may quite feasibly be ‘Monopsony Power’. With minute competition as a result of local-labourmarket concentration of large organisations and firms, the capability to control and stifle wages more and more has become very evident. This local-labour-market concentration was assessed using the HerfindahlHirschman Index (HHI). Researchers discovered that as HHI escalated (concentration of the labour market by one or few companies) wages declined. To expand on this, the inability of macroeconomic officials to pursue complete employment for most of the last 35 years, has had overwhelmingly damaging consequences on wage growth. As there are considerably less jobs than job seekers, those employing are able to employ and keep people devoid of the need for ample wage increases.

Furthermore, the results of this failing growth are immense. For example, income inequality has become much more prominent. The holdings of family wealth in 1989 by the top 10% was about 20 trillion out of 30 trillion, which has further grown to an astonishing 60 trillion out of 70 trillion in 2013. On the other hand, the holdings of family wealth by the 51st to 90th percentile and the bottom 50% has remained almost stationary. Within the 51st to 90th percentile, about 10 trillion of 30 trillion was held in 1989 compared to about 12 trillion of 70 trillion in 2013. With inequality comes rises in poor health and a decline in educational capabilities which in turn may lead to further consequences for the

economy. Problems such as unskilled workers and thus an overall reduction in output and productivity may become apparent when these consequences become apparent. Inequality may also lead to amplified crime rates and lower standards of living. As income gaps generate social tension, feelings of injustice increase and thus demonstrations of this injustice in violence arise. It is clear to see that with stagnation of wages, the economy suffers much more than one may think.