Why does rising employment not lead to higher wages?

Unemployment figures in the US, Japan and the UK have reached levels that are below pre-crisis lows. In the US economy recent figures show that since 2010 10 million American workers have found employment – unemployment has fallen by 40%. Similarly in Japan the number of unemployed has fallen from 3.6 million to 2.3 million and in the UK the unemployed figures have been cut by 50% with 800,000 unemployed. The question that needs to be answered here is why has wage growth been stagnant when the demand for labour has increased? See graph below for USA.

Wage growth US














The rationale behind this is that these economies have experienced an increase in uncertain forms of employment:
* part-time work has risen
* there is an increase of the underemployed where more hours could be worked
* looser contracts have helped create flexible workforces
* in general workers bargaining power has dropped

As a result of little wage growth there has been some political backlash:
* Obama has urged congress to increase the minimum wage form $7.25 – $10.10
* Both the main parties in the UK plan to clarify when insecure ‘zero hours’ contracts are abusive
* In Japan Shinzo Abe (PM) recently announced that temporary workers should expect the same deals as their full-time permanent colleagues.

As these steps lift pay and firms’ costs, inflation should follow.

Source: Economist March 2015

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s