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Why Won’t Wages Rise?

December 1, 2017
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The world is slowly starting to dust itself off, and get back up after the last recession. The world economy produced its largest growth in 7 years, we can proudly, at least somewhat proudly, say. This means that jobs are plentiful – businesses are picking up and people are getting hired.

In the normal way of things, this would usually mean that wages would quickly scramble up – a direct result of labour market competition. This is not the case for many countries, however. The OECD reports that such a living standard hit will impact some of the most advanced economies by 2019 – even before they can fully rise from the debris of 2009.

On one hand, November showed a solid increase in US job creation yet again, while October showed the weakest increase in workers’ earnings in 18 months. That increase was only 2.4%. In comparison to 2015, where increase was less than 2%, it’s an improvement but looking back to years gone by, it’s abysmal. Before the recession, American wages saw increases per annum by up to 3.6%.

It’s not only living standards that low wages impact. The weak increases in wages calls to question the speed of inflation, as well as the response in interest rate hikes by the Fed. Due to raise its rates for a third time mid December, it will have investors nervous for 2018.

Target Corp said back in September that it would increase its hourly wage from $11 USD to $15 USD by 2020. Though a mild move, this is not what we see across the board, however.

As Janet Yellen approaches the end of her term, she believes that American tight labour markets will soon have wages and prices rising. However, economists seem to think that online conglomerates like Amazon and Uber are responsible in part for the global earnings slowdown.

As always, politics play a role in economics, so Trump’s tax cuts will speak volumes in its potential to speed up both growth and inflation. What that will do to living standards, however, is another discussion.

To learn more about the American and global economic outlook, read this article on Reuters:  https://www.reuters.com/article/us-global-economy-wages/jobs-galore-but-when-will-wages-finally-pick-up-idUSKBN1DV4ZA

 

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