Monday, 15 October 2018 09:28

Why Wages Aren’t Rising

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(New York)

One of the big mysteries in this recovery has been the fact that wages have not risen much despite the fact that employment has expanded greatly. Investors have gotten used to massive amounts of new jobs being created, but also to quite meager wage gains. Economists have been somewhat stumped as to why, but a new explanation makes a lot of sense—monopsony. Those with an economics background will immediate recognize the term. It refers to when there are many suppliers of something but only one buyer. In this case it is being applied to the labor market—there are tons of available workers, but quite few employers, especially in more isolated locations. This means the employer has sole negotiating power in dictating wages, leading to widespread wage stagnation despite a competitive labor market.

FINSUM: This seems like the outcome of all the corporate consolidation that has occurred over the last few decades. There are less employers, so they collectively have more power to hold down wages.

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