An Answer to Slow Wage Growth?

Wall Street Journal: “New research from the Federal Reserve Bank of San Francisco says the economy’s problem is that it is dealing with firms that are working off ‘a stockpile of pent-up wage cuts’ built up over the recession of 2007 and 2009 and its aftermath.”

“Firms are doing this by way of not offering wage rises and by hiring more slowly than history suggests would be likely given the U.S. economy’s rate of growth. Until this plays out, many workers in the U.S. economy will struggle to find higher wages, in a process that is likely to continue ‘until labor markets have fully returned to normal.'”

At issue “is the phenomenon of ‘nominal wage rigidity.’ While it does not affect all industries equally, many types of companies are reluctant to trim wages when trouble arrives and workers resist pay cuts. With wages stuck, companies seeking to cut labor costs typically fire workers, put off hiring new ones, or do a bit of both.”

“The San Francisco Fed report suggests it will take some time for wage gains to accelerate in the way many people would like. This partly explains some Fed officials’ reluctance to move quickly toward raising rates.”

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