How To Raise Wages

Brief Analyses | Economy

No. 827
Wednesday, May 25, 2016
by Pamela Villarreal

Since the Great Recession, the unemployment rate has steadily fallen from a high of 10 percent in October 2009 to the current rate of 4.9 percent. However, job gains and a low unemployment rate have not been matched by accelerated wage growth. Wages have only grown about 2 percent annually since 2012. This is quite lower than the average 3 percent annual growth that occurred before the recession. Some politicians claim companies are simply being greedy, but it is important to look at other factors — the cost of employment, in particular.

  • The Cost of Employment. While wage growth may be staggering along, the cost of employment is increasing. The cost of employment includes mandated and voluntary benefits that are not explicitly in the employee’s hourly or salaried pay. These benefits include health insurance, worker’s compensation, unemployment insurance and contributions to pensions or retirement accounts.
  • In the first quarter of 2005, the average hourly wage across private industry and all occupations was $17.15.
  • Employer-provided health insurance, paid leave and legally required benefits increased the “implicit” wage an additional $5.40 per hour.
  • By first quarter 2015, the average hourly wage across private industry was $21.94.

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