U. S. Wage Growth’s Downward Spiral

Ferrell, C. (2010). U.S. wage growth: the downward spiral. Retrieved February 6, 2010 from http://www.businessweek.com/investor/content/feb2010/pi2010025_902249.htm.

This article, found on the BusinessWeek.com website, discusses the outlook on worker’s wages as the U.S. economy begins to recover from the “Great Recession”. Ferrell states the short- and long-term outlook for wages is very bleak even when the recovery is in full swing. As the unemployed start to return to the workforce, their long-term earnings outlook is grim as well. Research has shown that many will never recover from their financial losses. In a study of the effect on wages during and after the deep recession in the early 1980s, Columbia University’s Till Marco von Wachter found that laid-off workers suffered with short-term wage loss of about 30% in the year immediately after the layoff and the average long-term loss was 15%. The article also states that there is a disconnect between productivity growth and wage growth. While productivity has increased by 11% during the expansion period of the 2000s, hourly compensation has stayed flat. The information in this article is useful to managers in a couple of different ways. From a microeconomic standpoint, managers are able to keep costs low by not paying top wages and with a tight job market, will be able to do so without too much worry over keeping positions filled. Employee morale, job commitment, productivity, honesty, and other factors could be a concern though. Probably less concerning to individual mangers but of concern from the macroeconomic view is that these lower wages have a negative impact on the overall economy, including the firms that are responsible for keeping the wages low.