Why Pay Is Lagging in a Tight Job Market

A collapse in union membership among private-sector employees — to 6.5 percent last year from the upper teens in the early 1980s — appears to have played a key role in holding down wages. Average pay for workers represented by unions tends to be higher than for those who aren’t, even after controlling for education and other characteristics. And in industries and regions with a larger union presence, pay tends to be higher for all low- and medium-wage workers, not just those represented by unions.

“If you work for a nonunion firm and your employer is worried about the possibility of a unionization drive, one way to dampen down that possibility is to pay workers at the union rate,” said Jake Rosenfeld, a sociologist at Washington University in St. Louis.

The effects are especially pronounced for men. A study by Rosenfeld and two colleagues estimated that average wages for men in the private sector who are not union members (excluding senior managers) would have been 5 percent higher — about $2,700 per year — by 2013 if unions had the same reach as in the late 1970s.

— NOAM SCHEIBER

A Lagging Minimum Wage

The federal minimum wage, $7.25 an hour, has not increased since 2009, and its purchasing power has never returned on a sustained basis to what it delivered in the 1960s and ‘70s.

In response, some state and local governments have passed laws raising minimum wages to as high as $15 an hour, arguing it is the best way to ensure that low-wage workers who otherwise have little leverage are able to earn a living wage and share in the country’s economic growth. That movement has produced a backlash in Republican-controlled statehouses, where lawmakers have tried to pre-empt localities from enacting their own minimum wages.

Opponents maintain that raising the wage floor is a job killer and reduces the number of hours worked. Most of the recent research, however, shows that a moderate increase in the minimum wage has little or no effect on overall employment. Whatever negative effects there might be, economists say, are offset by workers’ greater purchasing power and revved-up economic activity.

— PATRICIA COHEN

Sluggish Productivity

One possible explanation for slow wage growth: Productivity growth has been just as anemic. Productivity — in its simplest form, how much value the average employee creates in an hour of work — rose about 2 percent per year from the 1970s through the first decade of this century. It has risen less than 1 percent per year since then.

Standard economic theory holds that over the long run, pay and productivity ought to rise together: As workers produce more per hour, companies can afford to pay them more. That does not always happen in practice — pay has lagged behind productivity, at least by some measures, since the 1970s. Still, if productivity picks up, wages are likely to follow suit.

The trouble is, weak productivity growth is just as much of a mystery as weak wage growth. There are pessimistic explanations (recent technological advances are less economically significant than those of earlier eras) and optimistic ones (recent advances are significant, but we haven’t felt their full effects yet). But no one is really sure.

— BEN CASSELMAN

Or Maybe It’s Normal

With the unemployment rate at 4.1 percent, the lowest since 2000, economists have been surprised by the slow growth in paychecks. Historically, when that few people are unemployed, companies have had to pay more to attract workers — supply and demand.

But maybe competition for workers is not quite as intense as the rate suggests. The government’s definition of unemployment excludes anyone not actively looking for work. Adam Ozimek, an economist at Moody’s Analytics, has found that under a broader definition — anyone in the prime working years who is not employed — recent wage growth is in line with historical norms.

Ozimek’s analysis suggests a sizable pool of people who are neither working nor counted as unemployed but who might be willing and able to work under the right circumstances. Some may be struggling with addiction or other illnesses, or may have been out of work so long that they’ve stopped looking. Others may just not be willing to work for the wages offered.

As the economy improves, more may come off the sidelines. But as some economists at the Federal Reserve Bank of San Francisco recently argued, that could make overall wage growth look worse, because people entering the labor force usually earn relatively low salaries. Demographics could also be a factor as retiring baby boomers (who, on average, earn relatively high wages) are gradually replaced by millennials (who generally earn less).

— BEN CASSELMAN