Wage growth: Still stagnant

June 27, 2014

Reuters has a story out this week delving into Fed chair Janet Yellen’s views about employment. Yellen wants to see more wage growth before she really believes the employment situation is improving, as “research from the Fed’s staff and her own past academic work both suggest there may be more slack in the economy than inflation hawks believe,” according to the Reuters piece.

But wage growth continues to be stagnant:

productivity-growth

Here are more details about her research:

Her research outlined a number of possibilities, including that companies realize upsetting workers may only cost companies more in the long run as some will quit or become less productive, while rehiring in a recovery will prove more costly.

But a flip side is that, as economies recover, firms make up for the lack of wage cuts by keeping worker pay constant for as long as possible.

The San Francisco Fed, where Yellen served as president until 2010, tracks the percentage of workers whose wages did not rise in the prior year. The bank’s “Wage Rigidity Meter” remains near an all-time high – evidence it will take more time before the type of wage-growth Yellen hopes to see.

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