Economic Policy Institute answers two laymen questions on wage stagnation:
Why is wage growth so slow? It’s not because low-wage jobs are being added disproportionately:
One explanation worth looking into is whether today’s low wage growth is due to a composition effect—i.e. low-wage jobs being added faster than middle- and/or high-wage jobs and, as a result, pulling down wage growth…But since 2013, as the recovery has strengthened, the opposite has been true—low-wage jobs are actually declining on net while middle and high wage jobs are being added…
In a previous blog post, we also showed that it is not lack of worker skills that is keeping wage growth low. What is most likely happening is that worker leverage and bargaining power have been so decimated by policy choices—policy choices that have, for example, led to the erosion of union coverage and labor standards like the minimum wage—that for tight labor markets to spark upward wage pressure the economy requires a much lower unemployment rate now than it did in the past. The solution is clear: we need the Federal Reserve to allow the unemployment rate to continue to drop, and we need policies to shift bargaining power back to workers.