SOURCE: Torry, Harriet; Harrison, David: ”Jobs Rebound, Wages Stand Still --- Ec

Question

SOURCE: Torry, Harriet; Harrison, David: ”Jobs Rebound, Wages Stand Still --- Economy bounces back from hurricanes; businesses can't find enough people to hire ”, November 4, 2017, the Wall Street Journal (eastern edition)

QUESTION: According to the article, ” Jobs Rebound, Wages Stand Still --- Economy bounces back from hurricanes; businesses can't find enough people to hire ”, the U.S. economy created 261,000 jobs in October, going down the unemployment rate to a 17-year low in October. However, worker wages declined slightly in October, and wages increased only 2.4% from a year earlier. It is a little bit puzzling. Considering the strong job market, wages should grow fast. Why do you think wage growth is still relatively weak? Do you think wage growth will catch up very soon ? Why or why not?  Briefly discuss.

Explanation / Answer

The economists have pointed out the four below mentioned reasons behind the slow growth of the wage rates despite having the lesser unemployment rate:-

• One of the fundamental reason is that due to job security reason, most of the employees are working in the same organization from a very long time. It could be as they have debts to pay or they are feeling securer in their current job and do not want to take the risk of switching job, thus the increments are quite low.

• Due to the employees retaining their current job for longer period of time, the demand for the higher pay has come down.

• The individuals who were having the long term unemployment i.e. being unemployed for more than a year are also returning to the labor market and thus they are willing to work at lower wage rates.

• As the economy is still recovering from the economic slow down thus people are looking for any job opportunity even despite receiving lower wages.

In most of the cases, employees expect to receive increment once a year. In the opinion of many economists, the wage rates are bound to be increasing in near future as the greeter confidence among the employees will be created with the decreasing rate of unemployment and they will start asking for the higher pays or they will start looking for the jobs which can facilitate them a higher salary if their requirements remain unfulfilled. Due to this the wage rates are bound to increase.

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