Why are Wages Not Rising in America?

Most Americans earn their income in the form of wages rather than in the form of investment income from shares, bonds or real estate. It is therefore important for the people of America that the wages keep increasing in proportion to productivity. However, this has not been the case. The average American worker has stagnant wages. Their wages have increased by approximately 0.2% per annum over the past 15 years or so. This is the reason why the rich keep getting richer while the poor get poorer. The economy of America is growing at a decent pace. However, most of the benefits of this economic growth are not accruing to the common worker.

It is important to understand the dynamics of wage growth in America. This understanding will help the politicians in framing better policies that can benefit the American worker.

In this article, we will have a closer look at some of the common reasons that are preventing a fair increase in the workers’ wages.

Technology

The last 15 or 20 years have been the era of technology. Earlier skilled workers were required for the production of goods. However, now most of the skilled tasks are done by the machines themselves. The workers are there to merely operate the machinery. Since the level of intelligence required has gone down for production workers, so have the wages. Technology has been putting downward pressure on wages. Accounting systems have replaced accountants. The point of sale systems is replacing cashiers. All business processes have intelligence built into computers or other machines. Human laborers have been reduced to mere accessories. With the advent of modern technology like robotic process automation, even the manual tasks are now being performed by machines. It is no surprise that human laborers have no bargaining power. Their wages have either been stagnant or have been reduced. Even if the wages have remained stagnant for 15 years, their purchasing power has been drastically reduced.

Imports and Globalization

The multinational corporations have lobbied various governments in the world. As a result, we now have a world with open borders. National boundaries do not restrict the movement of goods, capital, and labor. Organizations like World Trade Organization have worked towards reducing the tariffs and enabling cheaper imports. This has become a menace for the workers in developed nations. They are now in direct competition with workers in third world countries. The problem is that these foreign workers do not mind working in sweatshops for dismal wages. As a result, multinational corporations have been moving their production operations out of developed nations. The workers in these developed nations only do the administrative and sales tasks. Since these jobs are also under the constant threat of being outsourced, the wages continue to remain stagnant.

Inequality of Wage Distribution

Firstly, there are very few jobs for middle-income earners in the United States. The jobs that are there either support the high wage earners like CEO’s or the low wage earners who do menial jobs like janitors. The American middle class has effectively been outsourced. It is for this reason that there is a huge discrepancy between the wages that are paid at the higher echelons as well as the wages received by the average workers. Hence, even though statistics may show a small growth in wages, the real situation is actually much worse. The ones at the top of the pyramid are getting massive wage hikes. On the other hand, the ones at the bottom are seeing their wages plummet.

Declining Trade Unions

The membership of trade unions has also been drastically falling in the United States. This can be attributed to the weak bargaining power that these unions have after trade deals like NAFTA have taken place. It can also be attributed to the fact that the dues that need to be paid to continue to be a member of these unions remain fairly high. Since a lot of workers are already reeling with low wages and cannot afford these high dues, they opt out of these trade unions. It must also be noted that collective bargaining in the United States is not as powerful as it once was. This is because it is now legal to simply ship the jobs overseas. Since these trade unions have no power over what happens overseas, they do not hold much power in front of multinationals. Labor laws have prevented the exploitation of labor. However, wage increases are not something that can be legislated.

Non-Compete Contracts

In a free market, companies are supposed to compete for workers. However, the reality is that the companies are relatively fewer in number. Also, they tend to have tremendous options when it comes to selecting workers. Hence, some companies are entering into non-compete contracts with other organizations. This reduces the competition between them. Hence, the upward pressure on wages is prevented since the number of viable options that the worker has been cut.

To sum it up, the developments in the past 15 to 20 years have not really been in favor of workers. Multinational companies have become extremely powerful and have very high bargaining power. This is the reason why the wages of the American worker are either stagnant or declining.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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