Call it the no-raises recovery: Five years of economic expansion have done almost nothing to boost paychecks for typical American workers while the rich have gotten richer.
Meager improvements since 2009 have barely kept up with a similarly tepid pace of inflation, raising the real value of compensation per hour only 0.5 percent. That marks the weakest growth since World War II, with increases averaging 9.2 percent at a similar point in past expansions, according to Bureau of Labor Statistics data compiled by Bloomberg.
Federal Reserve Chairwoman Janet Yellen has zeroed in on faster wage growth as an important milestone for declaring the job market healed and ready to withstand policy tightening, even as other labor measures improve. Stagnant earnings also explain an economy that’s having trouble sustaining a rebound in housing and consumer spending, according to David Blanchflower, a professor of economics at Dartmouth College in Hanover, N.H.
“The bottom line is, we’re a million miles from full employment,” said Blanchflower, a Bank of England policy maker from 2006-09. “Workers are struggling, and they don’t see signs that things are suddenly going to change.”
Households in the top 20 percent of U.S. socioeconomic groups saw their incomes grow an average of $8,358 a year from 2008-12, compared with a $275 annual decline for the lowest 20 percent, according to data from the Bureau of Labor Statistics.
In the U.S., stagnant wages are linked to a question puzzling economists and policymakers: How many able and willing workers still are waiting on the sidelines? The issue may be among topics Yellen and other central bankers discuss this week at their annual symposium in Jackson Hole, Wyo., where the focus will be on the labor market. Until the economy burns through this excess capacity, employers have little incentive to give raises to attract and maintain employees.
Recoveries in the past exhausted that supply far faster than the current rebound, generating broad-based compensation increases that outpaced the speed of inflation and encouraged consumers to spend. If the economy had followed the historical relationship between joblessness and earnings, real wages would have been 3.6 percentage points higher by mid-2014, given how much unemployment has declined, according to a Chicago Fed study released last week.
The jobless rate was 6.2 percent in July, down from a post-recession high of 10 percent in October 2009. “We’re sort of in uncharted territory,” said Guy Berger, a U.S. economist at RBS Securities Inc. “This isn’t fully behaving like prior cycles.”
The abnormality reflects the depth of the 18-month contraction. It displaced millions of Americans who, even with a recent pickup in hiring, still are making their way back to gainful employment. The lack of wage increases also helps explain why U.S. consumers don’t seem to be on stronger footing this far into the expansion.
The National Association of Realtors projects a 3 percent decline in existing homes purchases this year to about 4.9 million from 5.1 million in 2013, while retail sales stalled last month.
“The scope for improvement is limited,” Berger said. “But real wage growth could make a difference. If we go up a percentage point from where we are now” in inflation-adjusted wage gains, “that allows consumer spending to accelerate as well.”
Lackluster pay has worsened headaches for President Barack Obama and fellow Democrats, with fewer than three months until the midterm elections. In daily Gallup tracking polls taken from Aug. 12-14, 51 percent of respondents disapproved of how he has handled the presidency, compared with 42 percent who approved. That pattern has persisted for more than a year.
Respondents in a Pew Research Center survey conducted July 8-14 were even less positive about his handling of the economy, with 56 percent saying they disapprove compared with 40 percent who approve.
“Right or wrong, the president gets credit and blame for what’s going on,” said Ethan Harris, co-head of global economics research at Bank of America Corp. in New York.