US Problem: Can a Country Without Wage Growth Continue to Grow?

A new Organisation for Economic Co-operation and Development report titled “OECD Employment Outlook 2018” makes a point that has been made elsewhere. While U.S. unemployment is at historic lows, wage growth is wanting. The wage problem could be as much of a threat to gross domestic product as a trade war or rising interest rates.

In the report, OECD Secretary-General Ángel Gurría said:

This trend of wageless growth in the face of a rise in employment highlights the structural changes in our economies that the global crisis has deepened, and it underlines the urgent need for countries to help workers, especially the low-skilled.

The report shows that wage growth in the U.S. is negligible. The Bureau of Labor Statistics experts recently wrote:

During the post-recession recovery period, the less-experienced were rehired and new workers found jobs for the first time. These lower-paid workers produced the opposite effect on the wage measure. Relatively more lower-paid workers in the employment composition put a damper on wage growth, causing it to increase less than would be expected in a recovery. Another consideration is the effect of retiring baby boomers on aggregate statistics. Older, higher-paid workers exiting the labor force has exerted a downward pressure on wage growth in recent years.

Once again, the lower end of the labor force regarding low-paid workers is the culprit.

The economic recovery and its ability to continue have a foundation based on several things. Among them are overall employment; the cost of living, which mostly is not rising; the ability to afford housing, which is eroding; and worker education, which shows no sign of improving. Much of this points to meager discretionary spending, particularly at the low-end of the wage scale.

The cost of living advantage may disappear. Part of the challenge derives from the increase in oil prices. Part, possibly, will come from a rise in prices of some goods and services if a substantial trade war starts.

All in all, the chances for wage increases in the economy, particularly at the low end of the scale, are depressing. And GDP faces a real threat as discretionary spending probably falters.

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