American wage growth has been sluggish since the recession. Unemployment rates have dropped, but wages haven’t seen a corresponding rise. This is partly due to the lack of bargaining power of workers, as well as the increased use of technology and globalisation.
Workers’ bargaining power has been eroded due to the decline of trade unions and the rise of part-time and temporary work. This means that even as productivity increases, wages remain stagnant.
Technology has also played a role in suppressing wage growth. Automation and digitalisation have replaced many jobs, particularly in the middle of the income distribution, leading to a polarisation of the labour market. High-skilled workers are in demand and can command high wages, while low-skilled workers are plentiful and cheap.
Globalisation has also contributed to the stagnation of wages. Companies can now source labour from anywhere in the world, putting downward pressure on wages. The offshoring of manufacturing jobs has particularly affected the middle class, who traditionally relied on these jobs for a stable income.
Lastly, the Federal Reserve’s low interest rates have encouraged companies to invest in capital rather than labour, further suppressing wage growth. The combination of these factors has led to the current situation of sluggish wage growth in America.
Go to source article: http://www.economist.com/blogs/economist-explains/2015/04/economist-explains-12?fsrc=scn/tw/te/ee/whyamericanwagegrowthislousy