## No Victory Lap Yet: U.S. Wage Growth Elusive

_IMF Blog, September 20, 2016_

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## Bibliographic details
- Authors: Stephan Danninger
- Published: September 20, 2016

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### Labor market overview and puzzle
- Unemployment rate has been below 5 percent for some time.
- Job growth is steady.
- Labor participation is increasing (more Americans returning to the labor market).
- Despite a bump-up in 2015, wage growth so far this year—compared to the 2000s—is still disappointingly low.
- Concern: consumer spending, which makes up the majority of U.S. economic output, cannot continue at the current pace unless wages grow.

### Legacy of the Great Recession: decomposition and re-entry effects
- Low wages are described as a vestige of the crisis; almost eight years after the height of the crisis, laid-off workers continue to re-enter the labor force.
- Decomposition effect: new employees are often hired for less than the average wage rate and, when re-entering after long unemployment spells, tend to accept wages well below peers who remained employed—pulling down the average hourly wage across all workers.
- The re-entry effect is substantially larger in the post-Great Recession period than before, with returnees to the labor market having to accept large wage cuts.

### Wage growth among continuously employed workers and productivity
- Wage growth for a broad segment of steadily employed workers is lower than a decade ago.
- Specific findings:
  - Wages of job stayers have risen 3.5 percent this year, a full percentage point lower than before the Great Recession.
  - Earnings at the 50th percentile have risen by 3.2 this year compared to 4.1 percent during 2000–07.
- The slowdown is observed across services and other sectors.
- Contrary to a common explanation, the rise in low-paying jobs has not grown nearly fast enough to make a substantial dent in average wage growth.
- Likely important factor: declining productivity of workers — "The more productive workers are, the more they earn."

### Decline in labor mobility and implications for productivity and wages
- Labor mobility has slowed over more than two decades; workers transition less frequently between firms or across sectors.
- Measured change in job changing:
  - Declined from 20 percent of job changes per year on average in the early 2000s to 12 percent in the last few years.
- The decline in job move rates was widespread: young and older workers, skilled and low-skilled, women and men.
- Results persist after accounting for lower job security post-2008 and changes in age and skill composition of the U.S. labor market.
- Slower reallocation: reallocation rates of workers to more productive firms appear to have slowed.
- Possible causes offered:
  - A rise in regulations that have raised the cost of job changing and hiring.
  - Technological change that makes skills less transferable.
  - A rise in social distrust.
- Little evidence that job searching has become easier and job matching better; reduced mobility likely weakens a traditional source of wage growth (climbing the wage ladder by changing jobs).

### Policy implications and recommendations
- A resounding wage recovery is not strongly supported by the evidence; policies to raise wages by increasing productivity are paramount.
- Policy recommendations for the United States:
  - Increase infrastructure investment to help businesses become more productive.
  - Expand partnerships between industry and higher education institutions.
  - Expand vocational training.
  - Expand apprenticeship programs.

*Stephan Danninger — September 20, 2016*

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_Source: https://www.imf.org/en/blogs/articles/2016/09/20/no-victory-lap-yet-u-s-wage-growth-elusive_