Low wages are still the economy’s biggest problem

You won’t hear most political elites talk about these numbers, but they matter more than almost any other:

Despite fears from some inflation hawks, the fact is that the weak labor market of the last seven years has put enormous downward pressure on wages, and there has been no significant pickup in nominal wage growth in recent years. As shown in the figure below, wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent.

What is more than obvious is that employers just don’t have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed to generate healthy labor market outcomes. The result is that over the last year slow nominal wage growth, and inflation-adjusted wage stagnation (or even outright declines), have continued.

There is no bigger problem in the economy that the growing difference between asset values and wage values. Asset inflation served for a while to disguise wage stagnation, but it’s no longer possible to mask the negative effects of the transfer of wealth away from wage earners toward asset holders.

With every economic downturn wage earners suffer more than asset holders, and every recovery is more and more jobless with slower wage growth.

And in spite of it all, conservatives continue to worry the country over deficits and inflation. But they’re not too upset over rising real estate prices and stock values. They’re just upset when actual workers see any money.

David Atkins

David Atkins is a writer, activist and research professional living in Santa Barbara. He is a contributor to the Washington Monthly's Political Animal and president of The Pollux Group, a qualitative research firm.