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That means that the minimum wage in most places is not a living wage. On top of this, you have the fact that America’s workforce in manufacturing and other blue-collar jobs have seen competition emerge in countries around the world. As this has happened, the incentives to pay workers for productivity have been overwhelmed. All of this has contributed to stagnant wage growth.

TOM: What do stagnant wages mean for people and the economy?  

MELLODY: The slow growth in wages — a persistent trend since the recession ended more than five years ago — helps explain the slow recovery. Hourly compensation has risen just 2.2% in the past four quarters, compared to a post-war average of 5.1%. As you know, tom, consumer spending accounts for about 70% of the economy in the united states. This has broader ramifications. Without greater wage growth, it is harder for people to save for retirement or invest. It means that people will not buy a bigger house, or a newer car. And that is bad news for individuals, and for companies that rely on them as customers.

TOM: Are we seeing signs that things could get better on the wage front?  

MELLODY: On a positive note, I think there are some signs suggesting we might be turning a corner. During this year’s election, all jurisdictions that had proposals to raise the minimum wage saw them pass easily. I think we will see a broader movement toward a living wage at all levels in the near future. Additionally, continued downward movement in unemployment rates will help to boost wages. Generally, once the economy gets to full structural employment – between 5-5.5% – wage growth tends to accelerate faster. Any growth in wages will benefit everyone, Tom!

TOM: Thanks for being on this morning! Have a great week!

MELLODY: You too, Tom!

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Monday Mondays: Why Wages Are Important  was originally published on

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