Current Thinking

Wage Growth in the United States-Positive Factors and Counterweights

A blog by Frederic Slade, CFA, Assistant Vice President and Senior Director, Investments, Pentegra Retirement Services – June 15, 2016

It has been well documented that real (inflation-adjusted) wages have been relatively stagnant over the past 15 years. The tables below show that while there has been movement both up and down, there has been no clear long-term upward trend.

It would take many pages to discuss the all of the drivers of this pattern of sluggish wages. However, it is instructive to look at several factors that should be expected to enhance wage growth but that have also been counter-weights to wage growth:

FactorPro Wage GrowthCounter-weight to Wage Growth
EducationThere has been significant growth in higher educational attainment1; this should lead to higher lifetime earnings potential.Higher levels of student debt; industrial productivity gains that have replaced trained workers; supply/demand imbalances in certain occupations such as engineering and software.
EconomyThe recovery from the 2008-09 recession should have generated increased pay levels.Wages didn’t come down significantly during the 2008-09 recession; therefore, employers have been reluctant to re-adjust pay to higher levels.
BenefitsAs an important element of employee compensation, employee benefits have risen by 3.4%/year over the past 15 years2An increase in part-time workers without benefits, who are paid less than full time workers.
EmploymentUnemployment is at 5%, employment is growing at 200,000 per month; this should put upward pressure on wages.Significant number of part-time workers (unemployed plus part-time=10%); over 37% of population not in labor force.
Industry MixManufacturing wages have been stable and increasing by 2.2% per year over the past 10 years.3Loss of manufacturing jobs overseas and to the service sector- 2 million in job losses over the past 10 years.4

In summary, the above table, which only begins to address the complex issue of pay growth in the United States, suggests that there have been economic and industry forces that should have provided greater impetus to wage growth, but have also acted as counter-weights.

1. The number of persons in the US age 25 and older or more who have completed at least 4 years of college increased by more than 57% between 2000 and 2015 (source: United States Census Bureau).
2. Sources: Bureau of Labor Statistics, Bloomberg.
3. Source: Bureau of Labor Statistics.
4. Sources: Bureau of Labor Statistics, Bloomberg.

NOTE: Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. Past performance is not a guarantee of future results.


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