Jobs and the Future of Work

What’s happening to US wages?

Ben Zipperer
Research Economist, Washington Center for Equitable Growth
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Jobs and the Future of Work?
The Big Picture
Explore and monitor how Future of Work is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Future of Work

The most recent wage figures in the United States show that raises were exceedingly hard to come by for most workers even as employment rose in January by 257,000. Nominal hourly wages (before factoring in inflation) over the past year grew by 2.2 percent, according to today’s employment and earnings data from the U.S. Bureau of Labor Statistics.

These paltry gains are significantly below the wage-growth levels that economists expect to see in a healthy labor market. For wage gains that reduce income inequality and strengthen family income, nominal wage growth would need to exceed 3.5 to 4.0 percent, assuming a productivity growth rate of 1.5 percent and the Federal Reserve’s target inflation rate of 2.0 percent. Wage growth may begin to pick up as the economy continues to add jobs, but it is outside of recent historical experience for the labor market to exhibit healthy wage growth without substantially higher levels of employment.

Stronger wage growth for production and nonsupervisory employees, who make up about four-fifths of the private sector, follows higher levels of employment. In the past 25 years, nominal wage growth for these workers exceeded 4.0 percent only when the employed share of prime-age workers between the ages of 25 and 54 was at least 80 percent. Only when the prime-age employment-to-population ratio exceeded 79 percent has nominal wage growth been faster than 3.5 percent. (See Figure 1)

Figure 1

020615-employment

The unemployment rate, at 5.7 percent in January, rose slightly from December’s 5.6 percent, but it is helpful to focus on the employed share of the overall population because the unemployment rate does not account for workers who have left the labor force. Last month, the prime-age employment-to-population ratio was only 77.2, up from 77.0 last month, indicating the U.S. labor market is not sufficiently tight enough to produce consistent and meaningful real wage gains in the near future. Unfortunately at the current pace of employment growth, the prime-age employment rate will not exceed 79 to 80 percent until sometime in 2017 or 2018.

If the Federal Reserve raises interest rates this year, as it has suggested, it will slow employment growth and limit the possibilities for wage gains especially for workers at the bottom of the income ladder. Even when workers begin to receive significant pay raises, it will take several years of high wage growth to make up for the ground lost in the Great Recession.

This article is published in collaboration with Equitable Growth. Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Ben Zipperer is a Research Economist at the Washington Center for Equitable Growth.

Image: Workers on the assembly line replace the back covers of 32-inch television sets at Element Electronics in Winnsboro, South Carolina. REUTERS/Chris Keane 

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Jobs and the Future of WorkEconomic Growth
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Pride Month: Nearly a third of LGBTQI+ workers have quit a job over feeling uncomfortable – here’s how to build more inclusive workplaces

Sander van't Noordende

June 17, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum