Why are wages so low in the US when we are almost at full employment?

Updated on : January 17, 2022 by Stanley Powell



Why are wages so low in the US when we are almost at full employment?

I think the answer is elegantly simple. Right now, the rich have no incentive to pay people they employ more than they have. The market does not regulate itself in this way; there will always be a "race to the bottom".

I can think of two types of incentives that worked in the past but are no longer used.

1. High taxes on high incomes. Unless there are what appear to be confiscatory fees on high incomes, the money stays with the extremely wealthy and is only temporarily gone. I experienced this by watching the wealthy owner of a retail chain who paid himself a salary more than a hundred times what he earned.

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I think the answer is elegantly simple. Right now, the rich have no incentive to pay people they employ more than they have. The market does not regulate itself in this way; there will always be a "race to the bottom".

I can think of two types of incentives that worked in the past but are no longer used.

1. High taxes on high incomes. Unless there are what appear to be confiscatory fees on high incomes, the money stays with the extremely wealthy and is only temporarily gone. I experienced this by seeing the wealthy owner of a retail chain paying himself a salary more than a hundred times higher than his employees, refusing to innovate to keep his chain running, and not adopting the Internet. Now he's out of business, with the millions he made and never reinvested. It was not an incentive for him to do so because the tax rate on his treasury was so low. All you had to do to protect it was put it in the bank or buy government bonds with it.

2. Living minimum wages. In 2018 dollars, the minimum wage in the US has fallen since 1968. Only inflation makes it appear higher. Otherwise it would cost around $ 20 right now. Whenever there is a movement to increase it, the rich plead poverty! They always talk about all the jobs that will be lost. But then I go back to point one; Without taxes, they have become used to having an excessive amount of money and they like to think that it "belongs to them", even if it is hundreds or thousands of times what most of the people who work for them pay.

I don't say any of this lightly. I worked in high-end retail for many years selling trinkets to the rich. They are perfectly aware that they are hoarding and their excuse is very traditional; they "deserve" your money more than anyone. Just as we know from psychology that the thief or thief refers to the goods he steals as "mine", the rich claim that the money they drain from the system is "his" by right. It never seems to occur to them that they hurt others to get it. They believe that the taxes that would fix things are a form of theft of "my money." Only an external regulation can change it. Without that, we will end up as a Third World country with a small minority of extremely rich people and a huge population of poor fighting for the crumbs.

Important issue as of 8/11/2021

I am pleased to say that the pandemic has sparked market forces that, for the moment, favor people in what we now call the Essential Workers category. They are all the people who actually do the work; waiters, factory workers, retail employees and the like. Many of them realized, while being laid off for unemployment, that they had been misled. Now people who paid them badly are going to beg and, by default, have to offer them something closer to a living wage. Still, many of those jobs will never be filled again. An ex-boss begged a professional waiter to come back, who simply couldn't afford to pay him more or he would be out of work. "Then maybe I shouldn't be in business," replied the waiter.

First, the article you posted is ridiculously idiotic. Isn't employment the solution to poverty? That is the dumbest statement I have ever heard in my life.

That's like saying that roads are not a solution for traffic congestion, or that food is not a solution for hunger, water is not a solution for thirst, medical treatment is not a solution for cancer.

Seriously? Isn't employment part of the solution to poverty? So is being unemployed?

If you need more proof that the New York Times and other news outlets are fake news filled with partisan political fanatics, this article you've published is what you're looking for.

Why are wages low when unemployment

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First, the article you posted is ridiculously idiotic. Isn't employment the solution to poverty? That is the dumbest statement I have ever heard in my life.

That's like saying that roads are not a solution for traffic congestion, or that food is not a solution for hunger, water is not a solution for thirst, medical treatment is not a solution for cancer.

Seriously? Isn't employment part of the solution to poverty? So is being unemployed?

If you need more proof that the New York Times and other news outlets are fake news filled with partisan political fanatics, this article you've published is what you're looking for.

Why are wages low when unemployment is down?

This should be obvious, but I'll explain it. Actually, it is not that difficult to understand.

Who are the majority of the unemployed? Are they all engineers, accountants, and doctors? No. They are mostly unskilled labor.

The vast majority of unemployed people at any given time are not trained electricians or carriers. They are low-value unskilled labor.

Now when unemployment goes down, what does that mean? It means millions of unskilled people with low-value labor are joining the workforce.

What does this do to median wages? When you look at average wages, what is going to happen? There are millions of people joining the workforce and they are all starting at the bottom of the income ladder.

What does that do to the average salary? Lower it.

At the same time, as the amount of unskilled labor decreases, companies have to increase their wages to attract workers.

So when you look at the general statistics, you can have wages that are going up, while at the same time the average wage is still the same or low, because all the people who are joining the workforce, they are joining at the end of the job. ready. income ladder.

My company did this. They had people starting at $ 10 an hour several years ago. But because we had such a critical staff shortage, to keep people from leaving, we were offering annual raises of $ 1 / hour up to $ 14 / hour. So while we were still hiring people at $ 10 / hour, we had people who had been there 4 years and were making $ 14 / hour.

So wages were going up, while at the same time we had new people hired at $ 10 an hour. So if you look at the average salary, it is likely to drop about $ 12 an hour, even though the wages of most employees have increased.

Hope that makes sense. As more people join the workforce, the increase in wages is offset, because all those new workers start at the bottom.

The posted link is behind a paywall so I didn't read it. But you can probably guess some of what it says.

What makes you think the United States has full employment? Because most of the so-called workforce, as counted, is employed in some kind of job?

The population size workforce has not recovered to 1999-2000 levels. Until then, it was due to the increasing participation of women in the workforce. Some will say it is because the population is aging and retiring. However, while that's part of it, that doesn't fully explain it. In fact, the age group 65 and over has had the fastest increase in

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The posted link is behind a paywall so I didn't read it. But you can probably guess some of what it says.

What makes you think the United States has full employment? Because most of the so-called workforce, as counted, is employed in some kind of job?

The population size workforce has not recovered to 1999-2000 levels. Until then, it was due to the increasing participation of women in the workforce. Some will say it is because the population is aging and retiring. However, while that's part of it, that doesn't fully explain it. In fact, the 65+ age group has had the fastest increase in labor force participation in recent years.

There are also many other worrying trends. The fact that there has been a marked increase in companies like these "gig economy" companies suggests that there is much more desperation out there. It generally pays no better than fast food, when all expenses are taken into account. The highest paid Uber driver I have ever heard of makes between $ 60,000 and $ 70,000 a year. However, he works 12 hours a day, 6 days a week * and * lives in Brooklyn, a place where $ 60K is not enough on its own. Hardly anyone would do this unless they could * really * use the money. So why do so many sign up to drive? In the more rural areas where they operate, you may sometimes even have to wait for hours.

What is most paradoxical is that the 25-54 age group has suffered a drop in labor force participation. Where exactly are they going? While "deaths from despair" have risen, that is not why. The deaths would reduce the population and therefore increase labor force participation.

I suspect they may be cases of things like a teacher in the local school system who inadvertently became a stay-at-home wife when the school system closes a school due to low demand. You may never apply to be a cook or a cashier, especially if your husband has a good income, but you may want to be a teacher again.

Either way, there are still a LOT of people who could take these jobs and seem willing to accept the offered salary. If someone is qualified for a better job but there are no better jobs, they are likely to remain in the lowest paid job, even without the raise.

There is also evidence to believe that the quality of work is declining. In other words, lousy jobs are increasing faster than those considered good breadwinner jobs, at least since the early 1990s. US Private Sector Job Quality Index.

Frankly, the wage pressure is increasing right now and wages are being run that way organically. It's all over the news, if you know where to look:

Trump's rising wages are a 'nightmare', says Restauranteur | Breitbart

WashPost: Farm Wages Are Too High | Breitbart

WashPost: Rising Truckers' Wages An "Economic Threat" | Breitbart

Trump's crackdown on immigration leads to higher construction wages

Shock: Wages and jobs skyrocket in US companies "hit" by metal tariffs | Breitbart

Workers' Wages Rise in a Hot Economy | Breitbart

And a whole list more ...

Search Breitbart - Breitbart

You may hate Breitbart, who gives

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Frankly, the wage pressure is increasing right now and wages are being run that way organically. It's all over the news, if you know where to look:

Trump's rising wages are a 'nightmare', says Restauranteur | Breitbart

WashPost: Farm Wages Are Too High | Breitbart

WashPost: Rising Truckers' Wages An "Economic Threat" | Breitbart

Trump's crackdown on immigration leads to higher construction wages

Shock: Wages and jobs skyrocket in US companies "hit" by metal tariffs | Breitbart

Workers' Wages Rise in a Hot Economy | Breitbart

And a whole list more ...

Search Breitbart - Breitbart

You may hate Breitbart, which, given your perspective, seems more likely, but they get your information so you can verify it. If they were publishing stories from secret and anonymous sources, I too would have my doubts.

Keep in mind that many of the salary increases are due to immigration control. I experienced this firsthand as a warehouse worker. The INS raided my workplace and the next day I walked into a nearly empty warehouse. My employer increased wages from $ 8 an hour to $ 9 an hour (a 12% increase) to attract legal workers. We get them with the highest salaries. Illegal immigration allows employers to pay lower wages because there is always someone who will work for less. High legal immigration does the same for manual jobs and tech jobs. It is simple (market) economy. A high supply of workers means that the cost of labor will remain low.

There are many employment measures. The most common is the U-3 measure. It is determined by the number of active job applicants there are. The U-3 rate is currently 3.5%.

The U-6 rate is a more comprehensive measure as it includes all discouraged, underemployed, and unemployed workers. That rate is currently 6.9%.

Table A-15. Alternative measures of labor underutilization

What this table does not show is how many people are working in low-wage or low-skill jobs. An employer may need 500 new hires, but only a fraction of them will be high-paying jobs such as managers or technicians.

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There are many employment measures. The most common is the U-3 measure. It is determined by the number of active job applicants there are. The U-3 rate is currently 3.5%.

The U-6 rate is a more comprehensive measure as it includes all discouraged, underemployed, and unemployed workers. That rate is currently 6.9%.

Table A-15. Alternative measures of labor underutilization

What this table does not show is how many people are working in low-wage or low-skill jobs. An employer may need 500 new hires, but only a fraction of them will be high-paying jobs such as managers or technical experts. Most will be less-skilled workers doing easy-to-learn jobs, such as cleaning or piecework.

If you are a less skilled worker, you can generally be replaced relatively easily, so wages are low. If you are fired, your job will be busy at the end of the week, if not the day.

However, if your job is more skilled, such as a mechanical engineer, it will be more difficult to replace you. So the company, which doesn't want to be without an engineer during the month it might take to fill that job, will pay better wages to prevent that employee from leaving for a better paying job.

Many of the new jobs that are created are low-skilled jobs or new hires, so wages will be lower.

Especially since many of the people employed like Vanessa in the article are dumb people working on low-skill subjects that don't have much of a value proposition.

Someone like her shouldn't have had one child, much less three. Who will pay the bill when those three kids apply for food stamps, as they inevitably will? Vanessa? Or the editors of the NY Times?

Nature has its own way of eliminating poverty through Social Darwinism, shortening the lives of the unproductive and benevolently stopping their multiplication. Populist wellness programs get in the way of nature and prevent its elimination.

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Especially since many of the people employed like Vanessa in the article are dumb people working on low-skill subjects that don't have much of a value proposition.

Someone like her shouldn't have had one child, much less three. Who will pay the bill when those three kids apply for food stamps, as they inevitably will? Vanessa? Or the editors of the NY Times?

Nature has its own way of eliminating poverty through Social Darwinism, shortening the lives of the unproductive and benevolently stopping their multiplication. Populist wellness programs get in the way of nature and prevent its elimination. That, in the eyes of the left, becomes yet another justification for more populism.

The article you linked talks about the uneducated. So that's the central theme of the article. I did not read it all because it is behind a login.

By some measures, average earnings have risen significantly.

Median weekly earnings for the second quarter of 2019 increased 3.7 percent for the year

Wage and wage growth in the United States

Average wages, average wages and wage dispersion

I have trouble seeing a general stagnation in wages.

Those without skills or experience will always be at the bottom of the pay scale. Here are a couple of sources to help understand the reasons.

The real cause of

Keep reading

The article you linked talks about the uneducated. So that's the central theme of the article. I did not read it all because it is behind a login.

By some measures, average earnings have risen significantly.

Median weekly earnings for the second quarter of 2019 increased 3.7 percent for the year

Wage and wage growth in the United States

Average wages, average wages and wage dispersion

I have trouble seeing a general stagnation in wages.

Those without skills or experience will always be at the bottom of the pay scale. Here are a couple of sources to help understand the reasons.

The real cause of income inequality in America

Causes of Income Inequality in the United States - Wikipedia

For the competition…. But maybe you're not thinking about the "underpaid overseas workforce" type.

Automation is eating up jobs, and automation manufacturers are competing with each other to make automation "better, stronger, faster, less expensive, etc." The result is a wave of automation that "keeps labor wages down" ... if wages go up too high (around $ 17 an hour with standard benefits right now), it starts to make sense to automate work as much as possible. .

The flip side of the problem is that the incentive is to find work "off the books" that pays better and skews the unemployment statistics ...

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For the competition…. But maybe you're not thinking about the "underpaid overseas workforce" type.

Automation is eating up jobs, and automation manufacturers are competing with each other to make automation "better, stronger, faster, less expensive, etc." The result is a wave of automation that "keeps labor wages down" ... if wages go up too high (around $ 17 an hour with standard benefits right now), it starts to make sense to automate work as much as possible. .

The other side of the problem is that the incentive is to find work “off the books” that pays better, and that skews the unemployment statistics… the interesting thing is that the labor participation rate is not changing much. The implication is not that these people are not working, the implication is that they are working in jobs outside the realm of classical unemployment statistics.

The article you link to suggests a big problem: the decline of unions.

Without unionization, employers can do whatever they want.

Any growth in the American economy is hitting the very rich these days.

Most workers are experiencing stagnant wages that are not keeping up with inflation.

Analysis | Inflation hits 6-year high, wiping out wage gains for the average American

Unskilled labor = compensated unskilled wage. Simple as that. Go to school, take up a trade, or start a business if you want more money; otherwise, it's usually not worth it, and many companies don't want to spend all of their profits to give all of their employees a couple more dollars. in wages each year. You signed a contract, if you don't like it, there are other options, they also have the right to expand and do what they want with the% that are left to innovate.

While wages haven't stayed high over the years due to recessions / slowdowns where business owners can't pay more because then there won't be any profit, so why run a business? Which means that business owners can only pay a limited amount. If they paid more, they would expect more from that worker and would hire fewer workers.

There are low-paying jobs that are for students and seniors. When a person accepts that job and has children, then they should already know that their salary at that specific company is not going to pay for their children, so why complain? Just go out there and get a better job. For some reason

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While wages haven't stayed high over the years due to recessions / slowdowns where business owners can't pay more because then there won't be any profit, so why run a business? Which means that business owners can only pay a limited amount. If they paid more, they would expect more from that worker and would hire fewer workers.

There are low-paying jobs that are for students and seniors. When a person accepts that job and has children, then they should already know that their salary at that specific company is not going to pay for their children, so why complain? Just go out there and get a better job. For whatever reason, no one knows why, people would rather complain than do the job.

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