Where's My Raise? The unemployment rate is really low, but wages are barely rising. What's going on?
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Where's My Raise?

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Where's My Raise?

Where's My Raise?

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CARDIFF GARCIA, HOST:

I'm Cardiff Garcia.

STACEY VANEK SMITH, HOST:

And I'm Stacey Vanek Smith. This is THE INDICATOR from Planet Money.

GARCIA: A show about work, business and the economy.

VANEK SMITH: Planet Money started during the financial crisis and we've always taken on these big projects. We bought a toxic asset. We made a T-shirt. We are sending a satellite into space. We love this stuff. But it means we can't always keep up with the news as much as we'd like. So we're starting a new show. About three days a week five minutes per episode, it's THE INDICATOR, Planet Money's quick take on a number or a term or a story in the news.

(SOUNDBITE OF DROP ELECTRIC SONG "WAKING UP TO THE FIRE")

VANEK SMITH: The job market was a bleak place nine years ago. Rick Elingburg saw this firsthand. He heads up an employment office in Asheville, N.C.

RICK ELINGBURG: I've been through the tough times when we lost a lot of manufacturing. There were probably 10 people for every job that was maybe available at that point in time.

GARCIA: Today, he says at least one thing is different.

ELINGBURG: Now we see just the opposite - 10 jobs for every one applicant out there.

VANEK SMITH: Is that right?

ELINGBURG: It's just really, really been white-hot for a long time in our job market.

VANEK SMITH: But not everything has changed. For instance, back when times were bad, says Rick, most jobs he had tended to pay around nine dollars an hour. And now - now that the tables have turned - most of the jobs pay around nine dollars an hour.

GARCIA: This isn't only happening in Asheville, all right. This is happening all over the country. Companies have hired a lot more people. But for some reason, they aren't paying them much more. They aren't competing for all those workers. And so what we've seen is that wages are only gradually, grindingly, even grudgingly rising.

VANEK SMITH: That is very poetic, Cardiff.

GARCIA: Thank you.

(SOUNDBITE OF DROP ELECTRIC SONG "WAKING UP TO THE FIRE")

VANEK SMITH: On today's INDICATOR, an economic mystery. With unemployment so low, why are wages growing so slowly?

(SOUNDBITE OF DROP ELECTRIC SONG "WAKING UP TO THE FIRE")

VANEK SMITH: Today's INDICATOR - 2.5. According to numbers from the federal government released this morning, average hourly earnings for American workers rose 2.5 percent over the past year. Once you take inflation into account, our wages have barely risen at all.

GARCIA: Yeah, and this is a mystery not just for Rick and Asheville, by the way. It's something that's been debated really heatedly by economists everywhere because there's no clear, single answer. But they have dug through the data. And they've come up with a few plausible ideas. To be clear, they haven't solved the mystery just yet. But they've suggested a few possibilities. These are explanations that are competing with each other with no clear winner yet.

VANEK SMITH: So here are three possibilities for why wages have been rising so slowly.

GARCIA: First, the workers themselves have changed.

VANEK SMITH: What about the people who are looking for jobs? Are they different than they were five years ago? Are they younger, older - different set of skills, anything?

ELINGBURG: What we're seeing basically that is a much younger job talent coming to us.

VANEK SMITH: American workers are getting younger. Baby boomers are retiring, and millennials are now the largest group in the workforce. And, of course, on average, a 25-year-old is just going to make less money than a 55-year-old.

GARCIA: Yeah, young people, they get their crappy starter jobs that don't pay that much money. Older people retire from their higher-wage jobs. And the overall average is therefore just held back a bit, right? This is just math. It's not really something to worry about.

VANEK SMITH: So this could explain part of the reason why wages have been rising so slowly. But even if you adjust for age, wages just aren't moving up the way that they should be. There is something else going on.

GARCIA: And that brings us to theory number two. It's brought to us by Michael Munger, an economist at Duke.

VANEK SMITH: So the other reason is robots.

MICHAEL MUNGER: The other reason is software.

VANEK SMITH: (Laughter).

MUNGER: And that's the hard thing to get around. I mean, robots are cool. Robots are something you can look at. Software is so boring.

VANEK SMITH: Reason number two, robots.

GARCIA: And?

VANEK SMITH: Software, apparently.

GARCIA: And?

VANEK SMITH: I like robots - and also technology. As we know, robots have been taking jobs that factory workers used to do. But what Munger says is now robots and software are starting to move into the white-collar territory as well. So for instance, every small business around the country used to have a bookkeeper. And now more often than not, that is not the case. That job is gone, and that person has been replaced by software - by Quicken.

GARCIA: Right, and if you think about it, as robots and software and technology and automation and every other category that Mike Munger wants us to include - as they all take over more jobs, the economy has to adjust. The people who lost their jobs have to find new jobs. And some of the jobs they end up taking just don't pay as much. Meanwhile, the people who already have jobs are more nervous about asking for a raise because they worry that they'll be next.

VANEK SMITH: And by the way, this wage mystery is happening at a moment when company profits are really high. And Munger says this is a problem because one of the core arguments in favor of capitalism is that there is something inherently fair at the core of it. When the system is working, everybody benefits in some way. The rising tide lifts all boats. And if that's not happening, says Munger, that is a big problem.

MUNGER: It means that you can't, with a straight face, make that argument about equity. It means that there's - the benefits of economic performance are not equally shared.

GARCIA: OK, so that's theory number two.

VANEK SMITH: Robots.

GARCIA: Robots and a few other things. And that brings us to theory number three for why wages have been growing so slowly. And, Stacey, I have to confess. This one's my favorite.

VANEK SMITH: All right, what is it?

GARCIA: There's still a lot of people on the sidelines. So yes, the official unemployment rate has absolutely plummeted in the last few years.

VANEK SMITH: Down to 4.1 percent.

GARCIA: Yup, but that number also leaves out a lot of people. Specifically, it leaves out one group of people who want a job and can't get one. But - and this is important - they also haven't actively looked for one in the last month.

VANEK SMITH: So maybe they've been dealing with a family emergency, or they've been taking care of their kids. Or maybe they just didn't see a job in the last four weeks that they wanted to apply to.

GARCIA: Yep, and it also leaves out people who work part time but who would rather have a full-time job. None of these people are officially counted as unemployed just because of how the government categorizes them. And right after the financial crisis and the recession, there were a lot of them. But as more jobs are created, employers have hired more of them. And meanwhile, the part-timers have been getting more full-time jobs. But until now, employers haven't had to offer them a lot more money.

VANEK SMITH: And so, Cardiff, if your pet theory is correct, there could be some good news on the horizon. We might be at a turning point.

GARCIA: Right, we do know that this year the share of all those people on the sidelines finally has fallen to where it was before the financial crisis, when wages were rising much faster than they are now. So it makes sense that wages would finally start to catch up. And assuming the jobs market keeps improving - there's absolutely no guarantee that's going to happen. But if it does, it means that workers may start getting pay bumps that really make a difference to their lives.

(SOUNDBITE OF DROP ELECTRIC SONG "WAKING UP TO THE FIRE")

VANEK SMITH: We'd love to hear what you think of the show, or if you have any ideas for an INDICATOR, send us an email - indicator@npr.org.

(SOUNDBITE OF DROP ELECTRIC SONG "WAKING UP TO THE FIRE")

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