Why Raises Are Slow in Coming

Although the U.S. unemployment rate dropped to 5.3 percent in July 2015, the lowest monthly rate since April 2008, for many people, raises have been slow to come by.

Why? As Vera Gibbons writes for Fortune:

“Employers in the U.S. are hiring, the nation’s unemployment rate is now at a rate considered near normal, and jobs are being filled across a range of industries, but there’s a missing piece of the puzzle: Paychecks still aren’t getting fatter despite improving labor market fundamentals. What’s keeping the lid on wage growth? While there are endless theories (many of them debatable), here are four real possibilities.”

  1. “After a weak gain in the first three months of 2015, the U.S. economy expanded at a seasonally adjusted annual pace of 2.3% in the second quarter — more or less the same pace at which the economy has been growing for the past six years. Contrast that to pre-recession growth, which averaged 3.5%.”
  2. “The official unemployment rate is not a revealing indicator of the job market’s strength because it doesn’t reflect the real labor market slack still lingering in the economy, says Irene Tung, senior policy researcher at the National Employment Law Project.And this slack — defined as more workers than jobs available — is ‘excessive,’ as indicated by the large number of unemployed or underemployed workers, and record low labor participation (62.6%).”
  3. “Technological advances and globalization have meant there are fewer middle-wage jobs to be had in the U.S. While some workers are learning new skills or reinventing themselves, and a few are retiring, countless others who had relatively well-paying jobs in dying sectors such as manufacturing are settling for lower-paying jobs within the service sector instead (such as retail, leisure, and hospitality), says Erik Brynjolfsson, director of the Initiative on the Digital Economy at MIT. ‘The weakness in worker compensation reflect this shift in the type of employment being created; the net effect has been lower wages.'”
  4. “‘Companies are stingy,’ says Ozlem Yaylaci, U.S. economist at IHS Global Insight. ‘They don’t want to pay anyone anything, and if there’s no pressure to, then why would they?’ In lieu of monetary compensation, companies are offering ‘other elements to otherwise complete the work experience,’ says Mary Ludgin, director of global investment research at Heitman Capital Management — from flexible work arrangements to snacks.” 

For advise on salary negotations, take a look at the Fortune video interview with Mika Brzezinski, who co-hosts MSNBC’s weekday morning broadcast Morning Joe.


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