By Kasra Kangarloo

WASHINGTON (MNI) – Inflation-adjusted wage growth has remained
surprisingly robust when compared to past recessions, averaging 1.1%
increases per year since 2008, according to a study by the San Francisco
Federal Reserve.

The reason for the relative strength is the low inflation
environment, according to the study, as this prevents wage values from
decaying as prices rise.

“Low inflation means that employers cannot reduce real wages simply
by letting inflation erode the value of worker pay,” the study says.
“Instead, if they want to reduce real labor costs, they must cut the
actual dollar value of wages.”

Employers are unlikely to cut wages, however, as this negatively
affects the morale of workers, especially during tough economic times.

Instead employers will generally keep wages frozen, an effect
observed across industries hardest hit by the current recession, notably
manufacturing, construction and financial services. This effect has been
observed in past recessions, except that real wage growth would slow
substantially as inflation continued unabated.

During the current recession wage-freezes and cuts have occurred
across all education levels, where as in previous recessions
higher-educated workers were generally safe from wage cuts.

“Less-educated workers have been historically been more likely to
get no yearly wage change,” the study says. “Recently though, the
percentage of workers with no wage change has increased markedly at all
education levels.”

According to the study, the unwillingness of employers to cut wages
can have a negative effect on the economy, as it deters workers from
seeking jobs in more profitable sectors.

“When economic conditions are poor, [the unwillingness of employers
to cut wages] can disrupt normal labor market functioning … workers
may receive false signals about the value of remaining in a particular
occupation or industry,” the study says.

— Kasra Kangarloo is a reporter for Need to Know News

** MNI Washington Bureau: 202-371-2121 **

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