Sat, December 03, 2022

U.S. economy and wages

U.S. economy and its challenges

The U.S. has the largest economy in the world. Since 2009, the U.S. economy continues to grow, and the current economic expansion is the longest one in modern history. It a well-known fact that the U.S. has the most sophisticated and powerful military in the world. Also, the country is home to more than 330 million people.

In this situation, it makes perfect sense that wages are also increasing thanks to the strong economy and low unemployment level. However, the situation is more complicated for several reasons. In 2019, annul pay increases is not as promising as it used to be in the past.

In February 2019, salaries increased by 3.4%, which is the best result after the great recession. It is important to mention since the economic expansion began in 2009, wages started to grow by more than 3% only in August 2018.

In the past, there was a correlation between the unemployment level and salaries. It means that when this rate used to go down, this would affect the wages. Employers had to offer better salaries to attract potential candidates.

It is worth mentioning that in September, unemployment fell to the lowest level in 50 years. However, this was not enough to boost salaries. Economists expected that wages would increase by 4% or more.

Some people will mention that 3% is not bad at all.

The economy and trade warWage growth and economy

As mentioned above, there are several factors that affected the U.S. economy. One of the major reasons without a doubt is the ongoing trade war between the U.S. and China.

The trade war between the U.S. and China started in 2018. Several weeks ago. U.S. and China reached the agreement. However, the date when the U.S. President Donald Trump and China’s President Xi Jinping remains unknown. Moreover, the “phase one” deal won’t solve all the problems. It is hard to say when both sides will be ready to end this trade dispute.

As a result of this trade war, the U.S. exported fewer products to China. Moreover, this dispute increased the price of imports. Problems connected with trade war created a cloud of uncertainty that influence market sentiment.

There is a serious issue that is directly connected to wages, and this problem is weak productivity growth. Productivity is important because output per worker should increase to make it possible to offer better salaries. As each employee is producing more, the company’s revenue is bigger than its labor costs. As a result, the company will have the opportunity to pay offer better wages.

In the last ten years, productivity grew by 1%. In this situation, it will be tough to pay more as productivity increased only by 1%.

Another problem is that due to the trade war and global economic problems, wages in the manufacturing sector increased by 2% in 2018. While in other sectors, this number was 3.3%.

Despite the fact that factory employment accounts for only 8.4% of total jobs, this sector can have a huge impact on the average U.S. pay. Manufacturing workers earn higher salaries than in other sectors.

According to the forecast, wages will continue to increase in the future. The U.S. economy continues to grow and this factor will affect salaries. 

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