The Economy Is Recovering. Why Aren’t Wages?

The Great Recession of 2007 was a difficult time. Businesses slashed wages. The poverty rate rose, and hiring stalled. And according to the Treasury Department, American households lost a staggering $19.2 trillion in wealth.

While the economy isn’t growing like it was in the early 2000s, the economic recovery is still rolling along. The unemployment rate has dropped to 4.4% from a high of 10.2% in 2009.

But despite the good news, economists are scratching their heads. Because while hiring and open jobs are steadily increasing, wages are not.


Low-Wage Blues

Construction jobs went unfilled in 2017 due to low wagesThis summer, home builders in Colorado slowed down on projects because they couldn’t find enough workers to erect frames.

A cleaning company in Columbus, Ohio couldn’t get candidates to show up for interviews.

Airline Horizon Air canceled flights because they couldn’t find enough pilots for their turboprop planes.

The problem? The wages on offer weren’t high enough to attract enough candidates to fill the open jobs.

Even the Federal Reserve has acknowledged this problem. “Despite the broad-based strength in measures of employment,” it said, “wage growth has been only modest, possibly held down by the weak pace of productivity growth in recent years.”

So what’s going on?



Economists aren’t in agreement about the cause of this wage stagnation.

Some are blaming the skills gap. The reasoning is that jobs are going unfilled because there aren’t enough skilled laborers to fill them. This hurts the overall economy and keeps wages low.

Binyamin Appelbaum of the New York Times disagrees. Instead, he blames hiring managers. On Twitter he wrote, A lot of American businesses have lost the muscle memory of how to compete for workers.


Wages aren't keeping pace with increases in hiring


Is Appelbaum right? Well, during the worst of the Great Recession, jobs were in short supply. Businesses had their choice of over-qualified applicants to choose from for even minimum-wage jobs.

But now that the unemployment rate has fallen, there’s no longer an abundance of candidates fighting over positions. Applebaum believes that hiring managers who no longer have candidates lined up around the block are failing to adapt, and are at a loss as to how to attract the interest of talented candidates.



No Quick Solutions

During the Great Recession, many companies survived by laying off workers, cutting wages, and cutting benefits. Many workers, meanwhile, survived by taking any and every job that offered a paycheck, even if it paid only a fraction of their former salary.

Skilled laborers are in high demand but wages aren't keeping paceThese two mind sets have continued to linger even after the economic recovery. Many businesses are stuck in cutback-mode, and many workers are too worried about losing their jobs to ask for higher wages. Or to risk quitting in search of a better-paying position elsewhere.

Time is the only force that will break this stalemate.

The economy is continuing to strengthen. As unemployment remains relatively low and consumers gain more confidence, businesses will feel more comfortable offering higher wages to attract the most talented workers.

The days when businesses could sit back and wait for skilled workers to walk through their doors might be gone forever, though. Firms that want to attract the types of skilled laborers who are in such high demand right now will have to get more creative.

Harry Holzer, a senior fellow at the Brookings Institution, suggests that companies struggling to fill jobs partner with community colleges to train the poorly skilled. Other suggestions: starting apprenticeship programs that provide on-the-job training, hiring the long-term unemployed, or hiring former felons.


Source: Bureau of Labor Statistics,,,






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