Evan Horowitz | Quick Study

Wage growth is anemic, and that’s all you really care about

LM Otero/Associated Press

The clearest, most direct way to gauge how everyday Americans are doing economically is just to ask, “Are you earning more this year than last?” Which is why it’s disconcerting that we keep getting the same lackluster answer: “Eh, somewhat more.”

A labor market like ours, where unemployment is below 4 percent and companies can’t hire quickly enough to fill all their job openings, should be a golden age for American workers. What better time to ask for raises, reach for new opportunities — and quit with impunity to pursue greener pastures?

Yet wage growth remains far slower than in prior booms. In both the dot-com era of the late 1990s and the housing bubble in the mid-2000s, hourly pay for blue-collar (nonmanagerial) workers rose 3.5 to 4.0 percent per year. This time around, they’ve been stuck near 2.5 percent.


That might not seem like a big difference, but it adds up. And while there is no obvious explanation, much less a quick fix, folks keep trying to solve the mystery. (More on this in a moment.)

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Until recently, you could plausibly point to hidden weaknesses in the job market. Yes, the unemployment rate was low, but that can be misleading, since it doesn’t count people too discouraged to even look for work. There were other measures, like the percentage of 25- to 54-year-olds with jobs, which told a less sanguine story and more closely matched the disappointing wage gains.

Little by little, though, this argument has lost some of its force, as those alternate measures have steadily improved without any equivalent jump in wage growth. And that has left some economists looking around for new explanations, starting with the prospect that we may be using the wrong measure of wages.

There are alternatives, including a quarterly survey that tracks how wages are changing industry by industry, and another that follows the changing paychecks of specific individuals.

Trouble is, while these alternative wage trackers do tend to show slightly faster wage growth — closer to 3 percent, or even above — the longer-term story remains unchanged. By virtually any measure, today’s raises just don’t compare with those of 2006 or 1999.


Increasingly, it looks like the underlying issue may lie elsewhere, and the search for a new approach recently launched a taut Twitter debate involving Jason Furman, chairman of the Council of Economic Advisors under President Obama, and a number of economists from think tanks and other research organizations.

At the end, Furman suggested that maybe the reason that wages are stuck is because workers aren’t getting more productive — that is, they aren’t finding ways to produce more stuff in the same amount of time.

There is, after all, a hard limit on what businesses can offer workers, assuming they want to avoid bankruptcy. Pay packages have to be in line with what employees actually contribute to the company’s bottom line. And that depends both on how capable individual employees may be, and also on the help they get from machines, the benefits of teamwork, management processes, and other aspects of their work environment.

And although you might think productivity is skyrocketing, thanks to swift gains in robotics and artificial intelligence, in fact productivity growth has been historically weak, as low or lower than any economic recovery since World War II.

So perhaps workers aren’t getting the raises they expect because they’re not providing the additional value businesses need.


There’s an issue with this explanation as well. Productivity and pay haven’t been neatly connected for decades now. Rather than being passed on to workers, a sizable share of the productivity gains since 1980 have piled up in the form of businesses’ profits and executive pay. Which means today’s businesses might be able to increase wages despite sluggish productivity growth, by tapping those stored reserves.

This leaves a final, mostly noneconomic explanation for why wages are stuck in neutral: Workers lack the bargaining power to demand more. Part of that probably has to do with the long-term decline in union membership. But it may also reflect a mere lack of practice.

More than a decade has passed since workers have been in such a strong bargaining position. And for a while it seemed like anyone who rocked the boat risked being thrown overboard into the storm of the financial crisis.

But it’s a new day, with unemployment low and companies increasingly complaining about a shortage of available workers. Time, then, to relearn how to press for a raise. And if your boss says no, maybe check out the job boards. After all, raises aren’t always given; sometimes they have to be won.

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the United States. He can be reached at