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Despite Falling Unemployment, U.S. Wages Stay Stagnant

AUDIE CORNISH, HOST:

At 4.3 percent, the unemployment rate is the lowest it's been since before the 9/11 attacks. And it used to be that low unemployment drove wages up. The thinking was that employers would have to pay more to hold on to workers who had more options. But that isn't how it's worked out the last few years, and it's baffling economists and policymakers alike. Bloomberg Businessweek economics editor Peter Coy investigated this and joins us now from their offices in New York. Welcome to the program, Peter.

PETER COY: Thank you very much.

CORNISH: All right, so this idea that wages should rise if unemployment is falling - is that economics gospel? Where does that come from?

COY: Pretty much. The Phillips curve described by a New Zealand economist way back in the 1950s. And it does seem to hold over the short term. And it makes sense. You know, oranges - if oranges are scarce in the supermarket the price goes up. Why wouldn't that be true for workers? Fewer workers available, you have to pay more to get them.

CORNISH: All right, but in your article you bring up a bunch of reasons that explain why wages may not be rising. And I want to talk about a couple of them. Let's group them into categories. So the first category is it's the employer's fault. What's going on there?

COY: One argument would be that we have a chronically low productivity rate in this country. And productivity is simply the output per hour of work. Now, you would think, well, isn't that the fault of the workers? They're just not working hard enough. And you know, maybe to some degree it is. But I think the bigger reason is that workers don't have the modern tools they need to do their jobs. And the companies haven't been upgrading. They have been underinvesting in such things as computers, software or, you know, factory machine tools. And if they're not investing then it's hard to blame the workers for the fact that they're not producing more.

CORNISH: Another category is essentially that it's our fault. Two reasons that surprised me - one, that we're content with what we're earning, which doesn't really sound like what you hear out - right? - on the campaign trail.

COY: Yeah.

CORNISH: Or that we don't have the bargaining power we used to as employees.

COY: I'll start with the bargaining power one. We have a drastic decline in the share of the civilian workforce that's represented by labor unions. So workers, they go into a negotiation with an employer, it's pretty much one against the company instead of all for one and one for all labor unions. And I do think that is part of it. There's also lack of bargaining power because workers are facing more competition from people in other countries. That's the globalization.

And then the thing you mentioned is the contentment. Now, I use the word contentment, but what I'm really talking about there is how much you're willing to dare to ask for a raise from your employer when you know you could be replaced by somebody else. You might be saying, look, things aren't that bad. Even with these low pay raises I'm doing a little better than inflation, so my real income's going up. I'll take it.

CORNISH: So in the end, are we giving up on this Phillips curve? And not just economists - is the American worker pretty much looking forward to stagnant wage growth?

COY: I think A.W. Phillips may be in his grave, but his idea is alive and well. And I think we will - it hasn't happened much yet, but I think we will see stronger wage growth as the unemployment rate falls probably even lower than it already is, down towards 4 percent, possibly below. There's only so long that employers can hold off from giving workers higher wages.

CORNISH: Peter Coy wrote the article "Unemployment In The U.S. Is Falling, So Why Isn't Pay Rising?" for Bloomberg Businessweek. He's the economics editor there. Thanks so much for speaking with me, Peter.

COY: Thank you. Transcript provided by NPR, Copyright NPR.