In the past, income increased at a higher rate than inflation. However, most people agree their raises have not had the same impact on their economic condition in recent times.
One of the primary reasons behind it is income not increasing at the same rate as inflation. It has caused many people to consider other income sources and partake in part-time work.
Studying the impact of wages on the standard of living falls under economics. Similarly, it explains the link between income and other economic factors.
Governments have also tried interjecting in this matter through their policies. They have introduced labour laws and wage control regulations to help increase satisfaction among workers. However, these changes have not had the desired impact on the economy.
Most people would agree that their wages have not increased at an expected level. Some even believe those wages have not grown at all. However, it is not a myth.
In economics, this belief falls under the wage stagnation notion. Many factors can contribute to stagnant wages. Before discussing those reasons, it is crucial to understand the concept of wage stagnation on its own.
What is Wage Stagnation?
Wage stagnation isn’t a separate concept of its own. Instead, it is a term used to describe the belief that wages have not grown over the past.
Despite the increasing corporate performance, workers have not seen the same growth in their income. Many governments have also promised employees a better wage. However, their efforts have been in vain as wages have not grown substantially over a period.
Wage stagnation has impacted a specific class of workers. Usually, it affects lower- or middle-class employees. In turn, it has also created a gap with the upper class.
In the past, these workers have not received a substantial rise. However, the employees at the top have experienced significant growth in their wages and income. This effect has grown the wage gap between those workers.
Furthermore, the GDP of many countries has increased. It measures the economic health of a nation and considers various factors.
One of those factors may include wages based on the method used to calculate the GDP. However, employee pay has had little impact on the GDP changing over time. Instead, other factors such as consumption have played a much more significant role in the process.
Wage stagnation has impacted many countries and continues to do so in modern times. Various reasons contribute to employee pay not flowing or moving.
Sometimes, these factors may relate to economic conditions. However, they also stem from the producers and participants within an economy. For example, employers have failed to increase their employees’ pay despite enjoying more success.
Wage stagnation refers to the concept that wages have not moved or flown. This flow may include positive or adverse changes. However, most employees prefer the former.
Wage growth has been a crucial issue for many countries and their workers. However, wage stagnation doesn’t represent the wages not moving at all. Instead, it refers to employee pay not increasing to keep up with inflation and other economic factors.
Why are Wages Stagnant? 5 reasons you should know
Most people wonder if wage stagnation is real. Despite their disbelief, there is enough empirical evidence to conclude that wages have become stagnant.
Enough studies show the difference between the wage increase and inflation over time. As the former has grown, it has not kept up with the inflation rates during times. However, that raises the question of why wages are stagnant.
Several factors contribute to why wages have become stagnant over time. These factors can relate to external factors, for example, the economy.
However, they may also fall under distinguishing conditions that employees face at their employer. These factors also describe the reasons for wage stagnation. However, the actual answer may vary based on the specific situation.
The top 5 reasons wages have become stagnant include the following.
Labour productivity has not changed.
In economics, labour productivity describes the hourly output generated by the economy through labour. It shows how efficiently employees contribute to the GDP.
Economists believe several factors influence the growth in labour productivity. Empirical economic evidence suggests that the labour productivity levels have not increased at the same rate as employers expect. Therefore, they have not received the same output from their workers.
Essentially, it implies employers don’t receive the benefits expected from their workers. Over the past few years, the labour productivity levels have become stagnant or moved upwards slowly.
Consequently, employers have not received the same value from their workers. It has provided little reason to increase the wages their employees receive. Therefore, it has contributed to wage stagnation.
Monopsonistic behaviour has flourished
Many companies face little to no competition in attracting and retaining new workers. It has provided them with what falls under “monopsony power”.
Essentially, it implies that they control the wages their employees receive. Usually, it stems from a concentration in the local labour market within an economy. Monopsony is one of the critical reasons for wage stagnation.
However, employers have applied monopsonistic behaviour to specific workers only. As stated above, it has impacted lower- and middle-class workers more than others.
One of the primary reasons behind this is that employers don’t see any value in those workers. It may also stem from the lower labour productivity of those classes.
Inexpensive labours are available
Building on the point of labour market concentration, wage stagnation can also relate to the availability of labour in the market. Currently, employers have many options when hiring workers.
It also contributes to the monopsony they have developed over time. However, the labour market concentration also describes why wages have become stagnant.
The availability of inexpensive labour has concentrated the market. In turn, it has provided employers with many alternatives. Current employees are also aware of these alternatives.
Therefore, they have been more lenient in accepting lower wage increases. Furthermore, employers have also used it as an excuse to create wage stagnation within their respective markets.
The gig economy has boosted
A gig economy describes a free market where temporary workers have become more prevalent. In this economy, employers hire independent workers for short-time work.
This concept has increased the alternative options employers have when hiring workers. Usually, these alternatives include freelancers, independent contractors and part-time workers.
The gig economy has further convoluted the issue of wage stagnation. The workers offering their services within this economy also provide their services for lower prices. In turn, it gives employers an incentive to outsource their work to other workers. This process further concentrates the labour market. Consequently, it contributes to wage stagnation.
Automation has taken over
One of the primary reasons why wages have become stagnant recently is automation. It refers to replacing work and workers with automatic systems. While it has created more efficient systems, it has also created issues with wage stagnation. Automation has taken over many jobs in several industries. Consequently, it has increased the unemployment rates.
Automation is more beneficial to employers and the economy as a whole. However, it has also contributed to wages being stagnant in many countries. It also causes the same issue as the other reasons described above.
Automation creates more competition within the labour market. On top of that, it contributes to the growth in concentration levels.
Wage stagnation refers to the failure of wages to flow or move, usually in a positive direction. However, it can also represent the failure of wage growth to keep up with inflation.
There are various reasons to explain why wages have become stagnant. Usually, they contribute to the same factors that cause wage stagnation. The top 5 reasons among those are available above.