Pay Cut For American Workers Despite Economy Being Great

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The economy in America is booming with the least unemployment rates in the recent years. Yet the workers do not feel it when they see their wallets. The wage growth in the US have been quite low.

A data released on Friday showed that the U.S. average hourly earnings adjusted for inflation fell by 0.2 percent in July from exactly an year earlier. This was the lowest reading since 2012. The inflation is not too high going by the historical data. It was too low for years after the 2007-2009 recession. Yet the recent gains are giving a hit to the U.S. paychecks.

Senior economist at MacroPolicy Perspectives LLC in New York, Laura Rosner said that inflation has been rising but  the wage growth has remained as flat as a pancake.  She also said that in a very tight labor market one would expect that workers negotiate their wages to keep up with the cost of living at least, which has not been the case.

At 3.9 percent, U.S. unemployment in July was near a 50-year low. While a figure to measure the inflation that excludes food and energy prices is close to 2.4 percent. This is the highest reading in almost a decade. But the wages are not keeping up . A big reason for this is the lack of bargaining power by the US workers.

An economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, Ryan Sweet said that given that inflation has been low in recent years, there hasn’t been a sense of urgency to negotiate for higher wages. He said that in the post-recession labor market, the workers have just forgotten how to bargain.

He added that as the labor market came back,  just surviving was enough for the workers and they give more importance to their job security more than asking for a higher wage.

So, as the scenario suggests, the workers are happy and content with their security of job. Hence they haven’t been bothered much about a higher wage.

A nominal wage growth might just pick up which should help drive up real wage gains over the coming few months. Inflation should not have any affect on this.

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