Unemployment keeps going down. So why aren't wages going up?

Jiggyfly

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Unemployment keeps going down. So why aren't wages going up?

By Heather Long @byHeatherLong

Americans want higher wages.

Pay hasn't budged in years. It's a problem that goes far beyond those earning minimum wage and fighting for $15 an hour.

The middle class is stagnating too. American household income is just shy of $54,000. It's barely moved from where it was 20 years ago.
In recent years, many economists and the Federal Reserve have said: Don't worry! Wage increases are coming along with a better economy.

"The economy has been performing well. And we expect it to continue to do so," Fed chair Janet Yellen, America's top economic policymaker, said Thursday.
But Main Street Americans can hardly draw comfort from an economic improvement that hasn't affected their pocketbooks.

"The Fed has consistently been optimistic about wages and inflation; still holding our breath on both," tweeted Diane Swonk, chief economist at Mesirow Financial.

People even protested outside the Fed meeting last week holding signs that read "Good jobs now!"
fed protestors
The rosy outlooks from economic gurus stems from an economic theory known as the Phillips Curve, which says more jobs lead to better wages and higher inflation.

There's a lot of math behind it, but the basic idea of the Phillips Curve is that as unemployment goes down, there are fewer people looking for work. That forces businesses to pay more to keep current employees or hire more. Inflation then starts to rise as businesses are able to lift prices because people have jobs and more money to spend.

Unemployment peaked at 10% in October 2010, its worst level in a quarter century. Now it's 5.1%. Many experts said once unemployment fell to 5.5% -- as it did in February -- wages would pick up within months.
But the current economic cycle seems to have broken with that theory, even though some economists and the Fed don't want to acknowledge it.

"[The Fed] just can't seem to let it go. They are incapable of thinking outside that curve," says economist Ed Yardeni of Yardeni Research.

In today's global economy, companies can find cheaper workers abroad and Baby Boomers may not be demanding higher wages like they once did, explains Michael Block, chief strategist at Rhino Trading.
"Economic models don't work in a vacuum like these guys [at the Fed] assume," Block says.

It has been a slow recovery. Some people have been able to get better pay when they changed jobs, although those are often higher-skilled workers.

But we might be in some sort of "new normal" where wages and inflation don't pick up.
That's a much more frightening prospect -- for Main Street, Wall Street and the Federal Reserve. It contributes to a growing sense of unease Americans have about their future and makes it harder to set economic policy.
For now, workers are doing OK because inflation is basically nonexistent. Prices rose a mere 0.2% in the past year (the Fed's inflation target is 2%). Americans' modest wage gains aren't being "eaten up" by having to pay more for gas, groceries and rent.

"I challenge the notion that it's as good thing to have inflation going up. A lot of inflation is rent inflation. Why is that good for consumers?" asks economist Yardeni.
Inflation is low because oil prices have plunged in the past year from over $100 a barrel to under $50 now. Health care costs have also moderated a bit, and the strong U.S. dollar makes imports cheap.
But the bottom line is Americans are still waiting for better wages -- and investors are still puzzled by how the Fed will set economic policy if wages and inflation don't improve.
 

Cowboysrock55

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Unemployment keeps going down. So why aren't wages going up?
Unemployment is a flawed statistic that isn't an accurate indicator at all of the job market. People not seeking jobs actively are excluded from the statistic. For example those on disability or public assistance who are not actively seeking work are not considered unemployed. Yet they are huge burdens on the economy and both groups are at all time highs in the United States. What people fail to understand is that the burden created by those folks actually hurts the working people in our economy.
 

Jiggyfly

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Unemployment is a flawed statistic that isn't an accurate indicator at all of the job market. People not seeking jobs actively are excluded from the statistic. For example those on disability or public assistance who are not actively seeking work are not considered unemployed. Yet they are huge burdens on the economy and both groups are at all time highs in the United States. What people fail to understand is that the burden created by those folks actually hurts the working people in our economy.
And there you go again with this.

A lot people on public assistance have jobs and people on assistance are not gifted that for life.

And what does any of that have to do with the article?

Why must you continue to act like 20% or more of the country are all sitting on their ass waiting for handouts, do you have any idea of the actual numbers and how they affect the uneployment rate?
 

BipolarFuk

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Funny how you never heard the unemployment rate was a flawed statistic until it started to go down under Obama.
 

Chocolate Lab

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And what does any of that have to do with the article?
It has everything to do with the article.

The article failed to mention that the participation rate is the lowest it's been since the 70s. That's the huge flaw in the "unemployment rate" statistic reported by the media. Unlike in the 80s to mid 2000s, there are tons of people out there without jobs. Thus, no pressure to raise wages.

 

Jiggyfly

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It has everything to do with the article.

The article failed to mention that the participation rate is the lowest it's been since the 70s. That's the huge flaw in the "unemployment rate" statistic reported by the media. Unlike in the 80s to mid 2000s, there are tons of people out there without jobs. Thus, no pressure to raise wages.

The article was talking about wages not going up if anything without as much participation it would make the workforce more valuable driving wages up.

Are you saying all of the participation rates have to with people getting a free check?

http://www.bloomberg.com/news/articles/2015-01-19/why-labor-force-participation-is-still-so-low

Combined, these trends explain why high-income households account for most of the shrinking labor force. There are fewer workers because more young people went to school (their parents' income counts as household income) and because only people who could afford to retire did so. But retirees and students can't account for all of the decline: Since the recession, the number of people not working because of a disability has steadily increased. And their numbers continue to increase five years into the recovery.
 
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townsend

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I think the slow inclusion of gen Y into the workforce as well as the beginning of the boomer retirement era will drive down wages for a while.

Add to that that our newest generation has had a comparably inferior opportunity for education than the past several makes for a unique workforce with a pretty weak skill set. We have millions of unfilled technician jobs in this country that no one's qualified for. I'll have made over 250k in the last 3 years as a guy who's willing to turn a wrench and go where the work is. (And work weird hours/overtime.)
 

skidadl

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Funny how you never heard the unemployment rate was a flawed statistic until it started to go down under Obama.
I definitely have. Did we just invent the idea of one side discrediting and attacking the other side since Obama has been in office.
 

L.T. Fan

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Economic definitions are that 5% is considered full employment because of the segment that are alwaysin a state of flux from job changes student part timers, etc. If that is applied then there is no one unemployed technically. How many believe that?
 

Genghis Khan

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What about underemployment? I feel like that's a big issue right now, and could account for stagnating wages.

I know one thing for certain, the economy is still in bad shape. Anyone trying to paint it otherwise is selling something.
 

L.T. Fan

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What about underemployment? I feel like that's a big issue right now, and could account for stagnating wages.

I know one thing for certain, the economy is still in bad shape. Anyone trying to paint it otherwise is selling something.
The economy is in a stage called stagflation. Growth is almost non existent but prices are rising. Happened in the 70s. It's not a term you will hear on the business news however.
 
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townsend

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The economy is in a stage called stagflation. Growth is almost non existent but prices are rising. Happened in the 70s. It's not a term you will hear on the business news however.
Technically we're actually experiencing a moderate amount of deflation according to the consumer price index.
 

L.T. Fan

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Technically we're actually experiencing a moderate amount of deflation according to the consumer price index.
Well they are wrong. They have an absurd index. Their premise is that gasoline is down and that's correct but the cost of food and other things are up.
 

Jiggyfly

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The economy is in a stage called stagflation. Growth is almost non existent but prices are rising. Happened in the 70s. It's not a term you will hear on the business news however.
Um no we are not.

In economics, stagflation, a portmanteau of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high
And inflation rate is not high at all even if you take out gas.
In contrast to the energy declines, the indexes for food and for all items
less food and energy both accelerated in September. The food index rose 0.4
percent, its largest increase since May 2014. The index for all items less
food and energy rose 0.2 percent in September. The indexes for shelter,
medical care, household furnishings and operations, and personal care all
increased; the indexes for apparel, used cars and trucks, new vehicles, and
airline fares were among those that declined.

The all items index was essentially unchanged for the 12 months ending
September after posting a 0.2 percent increase for the 12 months ending
August. The 18.4 percent decline in the energy index over the past year
offset increases in the indexes for food (up 1.6 percent) and all items
less food and energy (up 1.9 percent).
Yes it's higher but it's not appreciably so to consider us in stagflation.

The Economics Web Institute defines high inflation as an increase between 30 percent and 50 percent a year. Central banks, such as the Federal Reserve in the United States, strive to hold inflation to a minimum as part of their monetary policy. Some central banks strive to contain inflation rate increases to a target range of 1 to 3 percent.

Read more : http://www.ehow.com/about_7518068_high-rate-inflation.html
And unemployment definitely does not fit stagflation requirements.
 

townsend

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I think we're experiencing an economic upheaval which makes it simultaneously a great or terrible economy, depending on the location. I think may Midwestern cities are experiencing serious decline, while the south is booming heavily. So housing is going up where the economy is doing well, and dying where it's faltering. The net effect is a lot of conflicting numbers (and personal experiences) depending on whether you're in a booming or busting area.
 

Cowboysrock55

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And what does any of that have to do with the article?
It's an explanation for why unemployment can go down, and have wages still stagnant. You do realize there is more then one factor that impacts an economy right? So when we say unemployment is dropping and thus wages should be increasing, the assumption is that all other factors are being held constant. However, other factors aren't being held constant. When the number of unemployed in America isn't really dropping but instead there are just more people choosing not to work, it explains why the "unemployment rate" is dropping and wages aren't going up. Further more, there is an additional impact that people on disability have on an economy. They drain resources out of an economy causing it to shrink, which further explains why wages aren't going up.

Damn, please just take some remedial economics courses are something. I'm so tired of joe schmoe poly sci majors trying to claim that basic economic principles are wrong without having any clue about them.
 
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