The Great Resignation Could Fix the Decoupling of US Wages From Productivity Growth.
Positive change is hoped for the Bottom 90% in a changing labor market.
Do you feel that your wage is not growing fast enough?
Rest assured, you are not alone!
It's a feeling that has been growing in America for several years, and it's confirmed by the numbers. However, it's not something you can see if you look at the evolution of American workers' wages between 1979 and 2020:
On this chart, you can see that the average salary of American workers has increased well over the last decades. An increase that is still +17.5% between 1919 and 2020.
However, perception changes everything here, and that is why many feel that wages have not increased. If you look at the same period, you will see that the productivity of American workers has increased by +61.8%:
Thus, while the productivity of American workers has risen sharply over the period, there has been a stall in the average wage of American workers.
Worse, if you adjust the increase in American workers' wages with inflation in America over the past decades, wages are virtually unchanged. The sentiment of American workers is based on something tangible.
What is even more despairing is that wage stagnation is primarily among those who earn the least:
Over the period from 1979 to 2019, you can see that the Top 5% saw their salaries increase by +160.3% while the Bottom 90% saw their salaries grow by only 26.0%. This has only increased the already glaring inequalities in America at the time. For the top 0.1%, the increase was +345.2%. The current system favors the ultra-rich at the expense of the poorest. Something is wrong.
In the past, globalization and the automation of work have been blamed as the main causes of the slow growth of workers' wages. But more and more economists are revising their judgments. Now they suggest that the dynamism of work plays a far more crucial role. American workers are changing jobs less frequently today than in the past, yet changing jobs is generally what drives larger wage increases.
While some have an increased desire for stability, others feel they have very little flexibility with their work. In many local markets, companies take advantage of this lack of competition to keep workers' wages low.
The notion of monopsony power becomes clear here. Suppose you have a local market in a particular city, and in that city, there is only one employer. Since there is only one employer there, the employer will tend to set wages in a way that is lower than would be the case in a fully competitive market.
60% of labor markets are considered highly concentrated. Just 10% more workers in one region of America can lead to a 1% reduction in wages for workers in that region.
In each case, we see that government policies have been implemented to discourage labor force dynamism and to discourage workers from moving to a better job or to a better city to improve their employment prospects.
This phenomenon fostered the Great Resignation movement. This movement led to surprising wage increases. According to the U.S. Bureau of Labor Statistics, a quarter of private sector businesses in the U.S., employing 54 million workers, delivered pay raises due to the pandemic.
It seems that this movement, which is the result of the frustration of the lowest paid workers, could be a game changer in the future. We'll have to see how this evolves, but it could be a positive change for the Bottom 90% in a changing labor market. So it will be interesting to watch this carefully in the future. Even more interesting is that this movement seems to be spreading globally. Again, we will have to watch the consequences for workers.