Why wages will stagnate for another 14 years

There's no doubt that the U.S. economy has recovered from the Great Recession, reclaiming the 8.7 million jobs that were lost. But apparently they aren't the same jobs because the average annual wage for new jobs is 23% less than the average annual wage of jobs lost during the recession, according to a new report from the U.S. Conference of Mayors. And there was no wage growth in the latest monthly jobs report, which also showed the economy gaining 209,000 jobs.

"We're stuck in a kind of trap where we see a slowly accelerating economic recovery, but on the wage side it is basically still flat except for those top earners," says Tyler Cowen, economics professor at George Mason University, referring to the top 20% of earners whose wages are rising.Cowen says wages are fundamentally tied to the productivity of workers, which is affected by foreign competition and technology innovations.
But U.S. productivity since the mid-1960s has more than doubled while wages overall are essentially flat, according to Gerald Friedman, economics professor at University of Massachusetts-Amherst.

Cowen tells Yahoo Finance in the video above that slow wage growth will likely continue. "If you look at the typical American wage, it was as high in the year 2000 as it is today. That's about 14 years of stagnation," he notes. "In my view it is quite possible we will be seeing another 14 years of exactly that same pattern."

So what can people do to buck this trend and get jobs where wages are rising rather than stagnating or falling?
"You either have to work really well with computers or really well with other people -- skills that machines can't replace," says Cowen. "That's the future of our labor markets." He says those jobs are in management, personal services and technology.

 

It's exactly the same situation in Europe; wages for 90% of manual labour jobs are flat-lining and will do for the forseeable future. Companies are mning about the lack of skilled - labour but seem very reluctant to invest in it so we get a catch-22 as far as wages.

 

Also the fact that poorer countries will do a better job for a fraction of the pay someone in North America or Europe will do.

 

It doesn't surprise me at all that this is the projected future of job wages. I read something along these lines a few years ago and is largely why I left the corporate world and went solo. I make more than I did in that setting and am pretty grateful for it.

 

Exactly. I don't even really have anything else to add because this just about sums up my views perfectly on why so many people are losing money working for almost nothing. Things need to change if we ever expect something like this to advance or get better.

 

Well ultimately, people will have no money to pay for the products they make due to low wages so companies will go bust. There comes a point where food and shelter become the absolute priority and if there is little of a currency going round then people wont use it. No currency being used = worthless currency so people who hoard will have wasted their time and be left with nothing of value. A bit of a simplistic view I know but it could happen...

 

Nice post!
I'll try to remember it the next time I feel to lazy to get on the computer

There's a blog that I love, which has really good information on this topic.
Let me try to find it.



Sorry if the image is too big... Is there a way I can resize it?

 

Yes, I've been seeing this too. And it's very disconcerting. I don't know why companies haven't figured out that this system they've developed will eventually go bust. Yes, they'll continue making money or will even see an increase for a few years. But as someone said above, eventually people will not have enough money to spend and so they'll stop buying unnecessary products. I'm actually already seeing that. This is why so many companies are having to do sales now. People aren't buying the way they use to, even if we are coming our of the recession.

 

The only good news we get out of that bleak outlook is the fact that at least for the next 14 years much as the wages might be low, there'll still be some work available. What's worrying though is the fact that gradually people who can't work well with computers won't be getting huge salaries [or jobs]. Too bad is it? I suppose it's time those who can started thinking of making the right investments in order to escape the rat race.

 

It's unfortunate that it's so difficult to find decent paying jobs. The rich I'm sure will continue to get richer while everyone else sees their wages and opportunities decrease. I hope that things improve for everyone across the board at some point. I can't say I'm too optimistic that will actually happen.