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6 reasons wages aren’t growing as fast as the economy

SPONSORED — If you feel like your paycheck has reached a stalemate, you’re not alone.

Although wage growth in President Donald Trump’s first year in office has been 2.7-2.9 percent depending on the source, for many American workers, this Marketwatch.com chart still feels like reality.

Unemployment is at 3.9 percent — a 50-year low. So why isn’t the cost of labor skyrocketing? Here’s what you need to know about America’s modest wage growth.

The numbers can be misleading

The Bureau of Labor Statistics tends to under report unemployment, because “unemployment” has to meet certain criteria. The rate reflects the percentage of capable Americans looking for work (leaving out children, retired persons, etc.). But it doesn’t count “discouraged” workers, or those who have stopped actively looking for work for one reason or another.

“Wages aren’t rising the robust 6 to 9 percent the country experienced on average economic recoveries in the past,” said Ken Peterson of Online Trading Academy. “The drag on wages is due to the fact that the real unemployment rate is nowhere near 3.9 percent. Our modest gains are a reflection of the labor participation rate.”

LPR comes first

That labor participation rate creates a “slack” in the labor market, Adam Ozimek explained in an economy.com article. Each 1 percent drop in the LPR translates to 2.696 million fewer people in the workforce not looking for work. In July, the U.S. LPR was 62.9 percent, compared with 67.3 percent in 2000. Ozimek estimates that the LPR needs to reach 66 percent before the U.S. sees the wage growth typical of an economic recovery. In a nutshell, fewer discouraged workers mean higher wages.

“The good news is, since the low in 2016, the number of discouraged workers has declined by more than 1 million,” Peterson said.

Productivity is high

Higher productivity sounds like a good thing, and it is for everything but wage growth. Teresa Ghilarducci reported in the July issue of Forbes Magazine that U.S. worker productivity has increased by 74 percent over the last 40 years. Productivity leads to lower prices for consumers, greater profits for employers and either lower employment or lower wages for employees.

Workers are getting older

According to Ghilarducci, the “graying” of the workforce is another contributing factor to today’s low wages. Over the last 17 years, the economy has grown by 17 million jobs, while the number of Americans working past age 50 is also up by 17 million. That means fewer opportunities for younger workers. With fewer opportunities, it will be more difficult for these younger workers to save for retirement – the very reason more Americans are working into their golden years.

“So, the symptom is now contributing to the disease,” Peterson said.

Big companies are gaining power

There’s a reason everyone loves Amazon; giant companies generally mean lower prices. These “mega companies” are gaining more market power, which lowers prices – and wages.

“The gap is widest in the information sector where FAANG – Facebook, Apple, Amazon, Netflix and Google — dominate,” Ghilarducci said. “Large firms simply have more control of markets than they did before: profits rise and prices fall. When consumers and shareholders win, workers lose.”

The struggle is real

Low wages aren’t just about economic formulas; emotions play into the market as well. When employees are afraid of quitting, wages stay low because employers aren’t fighting to keep their people. But when Americans jump from one employer to another, wages naturally rise as businesses fight to keep their staff. According to Ghilarducci, fear is still high – particularly certain industries. After all, when there are only so many employers, there are fewer places to go.

For everything you need to know about today’s economy, visit Online Trading Academy.

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