Warning! No Raise Coming for Most of Us
There is plenty of advice out there on how to get a raise.
What most people need is advice on how to live without one.
That’s because, sad to say, your paycheck isn’t likely to grow anytime soon. Don’t be offended, it has little to do with the quality of your work or whether you actually deserve a bump in pay.
It has much more to do with an economy that is making longtime observers scratch their heads in bewilderment. They rattle off terms like “U-6 rates” and the “Phillips Curve” that will make your eyes glaze over.
We’ll touch on that stuff in a minute. What it all essentially means is that you can skip reading articles like “5 Signs It’s Time to Ask for a Raise” and “9 Things You Should Never Say When Asking for a Raise.”
Based on economic forecasts, you’re better off reading “10 Things to Do after I Go into Debt Because My Boss Refuses to Pay Me What I’m Worth … Darn It!”
First, resist the urge to go Johnny Paycheck on your boss. Singing “Take This Job and Shove It” is a good way to release frustration. But mysterious economic forces are more to blame for stagnant paychecks than your boss.
“Despite the broad-based strength in measures of employment, wage growth has been only modest, possibly held down by the weak pace of productivity growth in recent years.”
That was the first-quarter 2017 report from the Federal Reserve. What it meant was the U.S. economy has been acting weird.
Frankly, explaining the weirdness can get a little boring. So, if you’re not really into economics, just skim over the next few paragraphs.
The unemployment rate hit a decade low of 4.4% in April of 2017. A tight job market should benefit workers since there are fewer of them to choose from. Employers have to pay more to attract and retain employees.
At least that’s what experts were taught in Business 101. But hourly earnings of all private non-farm workers grew just 2.5% over the past year.
If you think 2.5% growth is good, think again. The last time the unemployment rate was this low, average wage growth was more than 4%. Wage growth averaged 6.26% from 1960 to 2017, reaching an all-time high of 13.77% in January of 1979.
The historical, logical link between unemployment and wages seems to have ruptured. WARNING: Really boring economic stuff to follow.
The Phillips Curve seems to have died. It tracks wage growth on a vertical axis and unemployment on a horizontal axis. The curve is supposed to flow smoothly down to the right in times like these.
It could be linked to the U-6 rate, which is the unemployment rate plus the number of people who are not actively looking, but still want a job. That number is 8.6%.
In an expanding economy, the demand for goods and services should push wages higher. The higher wages should lure those non-participants back into the workforce. But that’s just not happening.
Economies worldwide are in a wage-growth slump. Germany has strong unions, low unemployment and booming exports. Despite all that, Germany has produced a meager 2.1% wage growth since 2013.
Countries like Italy are even experiencing negative wage growth. And five-year forecasts predict paychecks are going to stay pretty much the same.
Members of the Federal Reserve and other pointy heads can study their charts and debate the ramifications to economic theorem. The average person doesn’t need a Phillips Curve to know what it all means: No bump in salary, means no extra income, which means less purchasing power and that can lead to all sorts of problems if you’re not careful.
Debt is at the top of the bogeyman list. Consumer debt in the U.S. hit an all-time high of $12.73 trillion in the first quarter of 2017. That broke the record set in 2008, right before the credit bubble burst, financial systems collapsed and the economy went in the tank for four or five years.
There’s not much fear of a repeat, at least on a global scale. But people who were counting on rising wages to keep up with their bills could really feel a pinch.
Millions of them could drown, at least figuratively, in the tidal wave of student loan debt. That hit $1.3 trillion in 2017, which is more than double what it was just nine years ago.
About 10% of student borrowers are in default on their payments. Student loans are harder to shed or restructure than mortgages or credit card debt. That causes an adverse domino effect on the entire budget.
With money tight, credit cards become a convenient way to make ends meet. Unfortunately, when you use your card to pay all the bills, debt quickly piles up, especially with interest rates approaching an average of 16%.
Suddenly, you could be paying $200 in minimum monthly charges with most of that going to pay the interest due and only pennies actually going toward the actual debt.
That’s when a debt management becomes critical. Millions of Americans have found help through nonprofit organizations that consolidate their debt and work with lenders to reduce interest rates.
Counselors also set up budgets that will help people get out of the hole. Those budget projections probably won’t include a raise anytime soon, not the way the economy is behaving.
But at least you’ll be able to sing “Take This Debt and Shove It” to credit card companies.
That might feel almost as good as getting a raise.
Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.
- Domm, P. (2017, August 4). ‘Mystery’ of slow wage growth keeps market doubting Fed can hike interest rates. Retrieved from https://www.cnbc.com/2017/08/04/mystery-of-slow-wage-growth-keeps-market-doubting-fed-can-hike-rates.html
- Baylor, T. (2017, April 16). Stuck in the Mud: U.S. Wage Stagnation. Retrieved from https://theeconreview.com/2017/04/16/stuck-in-the-mud-u-s-wage-stagnation/
- Corkery, M. and Cowley, S. (2017, May 17). Household Debt Make a Comeback in U.S. Retrieved from https://www.nytimes.com/2017/05/17/business/dealbook/household-debt-united-states.html?_r=0