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Don’t blame business for slow wage growth

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Productivity levels are the main culprit, even if employers’ restrictive policies also play a role.


Economics

Are wages determined by market forces, or do businesses get to decide what pay they offer to workers?

This question gets at the heart of a lot of the debate about the economy. Why has wage growth been so sluggish for so many years?

If you’re on the market-forces side of the wage question, you might answer that productivity growth has been weak. If you’re on the side of the debate that believes corporations have considerable power to pay workers what they want, thwarting market forces, then you might answer that employers have made the decision to boost profits at the expense of raising wages.

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Of course, few people — and even fewer economists — believe that one factor or the other has no role at all in the determination of wages. But it is common to hear some prominent analysts and organizations on the left argue that the link between wages and productivity for most workers has effectively been severed for decades. Likewise, many on the right quickly dismiss the importance of non-market factors in explaining wages.

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