The financial news seems to have been frequently talking about the fact that overall in the US the average wages have not been "growing" fast enough to get ahead of inflation. Yes, it appears that during the past few years, the number of people employed has increased, and the number of people looking for work (the unemployed) have gone down. However we continually hear that the average wages have not gone up faster than about 1.5% over inflation. The financial press implies that we need wages to increase faster so people will be able to afford to buy homes, for example.
From my understanding of economics, in a perfect world, average wages would increase exactly the amount of inflation + labor productivity. So if we have 1.6% inflation, and 1.5% productivity (see this Bureau of Labor Statistics Chart) increase, wages could increase by 3.1%. Of course "inflation adjusted" would be 1.5%. . If wages increased faster than productivity the nation would experience "cost push" inflation, which reduced the value of the currency, and forces the cost of goods and services higher. If wages increased slower than that amount, the economy could slow down. Although that could also increase the amount of money available for businesses to invest to expand or buy equipment to improve labor efficiency.
It isn't clear to me that real wages haven't been increasing faster than inflation. According to these charts the cost of medical care in the US rose by around 8% in 2014on a per capita basis. Yes a lot of those costs are passed on to citizens, and some are paid by the Government. However a significant percentage of those costs are also paid by companies who are paying for medical insurance. In addition, other federal, state, and local taxes have increased the cost of labor. Changes in laws that force companies to provide more insurance, or vacation also increases the cost of labor--but also results in increase in benefits to the worker. The financial pundits in the news seem to dwell only on the amount of pay increases that end up going into an employee's bank account, but ignore the large percentage of other benefits that employees are receiving --that have, in fact, been increasing faster than inflation.
From my understanding of economics, in a perfect world, average wages would increase exactly the amount of inflation + labor productivity. So if we have 1.6% inflation, and 1.5% productivity (see this Bureau of Labor Statistics Chart) increase, wages could increase by 3.1%. Of course "inflation adjusted" would be 1.5%. . If wages increased faster than productivity the nation would experience "cost push" inflation, which reduced the value of the currency, and forces the cost of goods and services higher. If wages increased slower than that amount, the economy could slow down. Although that could also increase the amount of money available for businesses to invest to expand or buy equipment to improve labor efficiency.
It isn't clear to me that real wages haven't been increasing faster than inflation. According to these charts the cost of medical care in the US rose by around 8% in 2014on a per capita basis. Yes a lot of those costs are passed on to citizens, and some are paid by the Government. However a significant percentage of those costs are also paid by companies who are paying for medical insurance. In addition, other federal, state, and local taxes have increased the cost of labor. Changes in laws that force companies to provide more insurance, or vacation also increases the cost of labor--but also results in increase in benefits to the worker. The financial pundits in the news seem to dwell only on the amount of pay increases that end up going into an employee's bank account, but ignore the large percentage of other benefits that employees are receiving --that have, in fact, been increasing faster than inflation.
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