STEVE INSKEEP, HOST:
The stock market hit a record high the other day. Employment is also running high. They have been for years - the very conditions that tend to push up wages. So why isn't that happening? David Wessel is here to talk with us about that. He is at the Hutchins Center at the Brookings Institution. Welcome back, David.
DAVID WESSEL: Good to talk to you, Steve.
INSKEEP: A couple of years ago, it seemed that wages were finally climbing. What's happened since?
WESSEL: Well, I think a good yardstick is to look at what happens to the wages of people who work full time year-round. And according to the Census Bureau, the typical man earns about $54,000 a year. The typical woman earns about $43,000 a year. Adjusted for inflation, the typical man who works full time is earning less today than his counterpart did in 1988.
INSKEEP: Wow.
WESSEL: I think that's extraordinary. Now, more recently, as you point out, wages have begun to go up, but they haven't gone up much more than inflation. It depends month to month what's happening. So adjusted for inflation, wages are basically flat, even though we have unemployment at an 18-year low.
INSKEEP: Why would that be?
WESSEL: Well, that's a good question. It's one that economists in academia all the way up to the chairman of the Federal Reserve have been asking recently, and I think there are a couple of possible explanations. One is that the unemployment rate is misleading. There are a lot of workers on the sidelines of the economy, and they are being pulled in by the recovery. Another is that productivity has been growing very slowly. Rising productivity growth is the way that employers can afford to raise wages and maintain profits, so you would expect wages to be growing sluggishly when productivity growth is low. But in many ways, I think what's going on is that workers simply have less bargaining power today than they once did. Unions are weaker. There's an explosion of temp agencies and outsourcing and the gig economy. And in lots of communities across the country, very few employers dominate the labor market, so that workers have no choice but to work for them. In some communities, for instance, it's the hospital. So that means employers aren't competing for workers by raising wages, and that depresses them.
INSKEEP: Anand Giridharadas, a writer who was on the program the other day, put out a book about inequities in the economy and suggested that, essentially, productivity is going up but that the economy has changed in ways that people at the top are able to hold on to more and more and more of those gains and not share.
WESSEL: I think that's true. Productivity is growing. It's just growing at a disappointingly slow pace. But it's true that the benefits of the growing economy are being increasingly claimed by people at the top.
INSKEEP: So what does this mean if you're Jerome Powell running the Federal Reserve or any number of the other people who are in positions of power and are supposed to influence the economy?
WESSEL: Well, what they refer to at the Fed as the wage puzzle is really central to their decision-making on interest rates today. Usually, history tells us that when an unemployment rate goes way, way down, wages start to go up, and then businesses start to raise prices and you have more inflation. But that relationship isn't holding now. So the Fed has to decide is something really different in the economy? Is this a permanent change? Or are wage increases just around the corner? In which case, they should be raising rates more rapidly than they are.
INSKEEP: Is this wage stagnation the same for every kind of person?
WESSEL: No, of course not. We're talking about averages. Wages actually are going up a little faster at the bottom than they are for people at the middle. Yes, the best-paid people - CEOs, lawyers at big law firms, the best ballplayers - they're doing very well. But when we look at the data, it turns out that things like raising the minimum wage, which has happened in 18 states this year, that's beginning to lift the wages of the least-paid people in the economy a little more than the typical worker at the middle.
INSKEEP: David Wessel of the Brookings Institution and The Wall Street Journal, thanks very much.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.
