Wage Expectations for 2013

The recovery from the 2008-2009 recession has been tepid at best, and has disappointed many.  Coming out of such deep recessions we have historically seen accelerated growth for several years, which has somewhat softened the pain of recessions and enabled businesses large and small to recover their losses.  This tepid recovery is projected to develop into slower growth long-term, as has been concluded in independent evaluations by a leading economist and a leading money manager, according to the WSJ article “U.S. Stocks: Look Out Below?”  While not the point of the WSJ article, this slower economic growth will directly and necessarily reduce the wealth creation of firms, which will directly and necessarily impact wage expectations for 2013 and beyond.

The first impact that this slower growth will have on wage expectations is through an increased gap between the income earned by the top tier wage-earner and rest of the workforce.  While not desirable for the economy, this will be the logical result of an economic environment that has less opportunity for growth.  This environment will increase the relative value of workers who are able to find opportunities for growth, especially those able to lead the implementation of expansion into new areas of business for company ownership.  The most critical of these will be the CEO’s and company leaders who are able to successfully implement these growth initiatives; the pay of these individuals will therefore increase due to this value that they are bringing to the ownership.

The rest of the workforce, meanwhile, will be pressured from two sides.  The flip side of the previous paragraph is that although the work they do is still important, it is not as critical because the Big Question will not be “How Can We Do This?” but more fundamentally “What Should We Do?”  On the other hand, the slower growth will reduce the availability of jobs and result in a higher unemployment rate.  As a simple matter of supply and demand, this slower demand will necessarily work against salary growth for the bulk of the workforce.

This raises the inevitable question of how wage negotiations must be managed especially with a unionized labor force.  Unionized labor forces in the long term have shown negative impacts to the profitability of a company, although they have been able to “negotiate” lucrative contracts in the short run.  This long-term negative impact has resulted in bankruptcies at GM and Chrysler, and most recently at Hostess.  A concept missed by the unionized labor force is the fact that if the growth in profit does not exceed the increase in value that the labor force provides such as through higher efficiency, the long-run viability of the business is at risk.  From the perspective of the labor force, the workers as a whole and every worker individually must pursue how he can add more value to his work for his employer, and this will be the only way to justify wage increases.

In a low-growth environment, what ideas are there to reduce the income gap?

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7 thoughts on “Wage Expectations for 2013

  1. Supporta the middle class. I’m not a socialist, but the better the middle class does, the better the entire US economy does, therefore the better growth and wages are. This could be in the form of a better tax system, better education (focused on math and science and practical application), and consistent benefits (either from the employer or through unemployment). One of the fundamental problems right now is everyone, individuals and businesses alike, are sitting on piles of cash because everyone is so uncertain about the uncertainty that there is no incentive to spend, therefore no growth. While the unwinding of debt still needs to occur, incentives to spend also need to be in-place (like the Fed’s recent announcement that rates will not be raised until unemployment hits 6.5%).

  2. The employment structure of the United States is broken. Top CEO’s of failing companies are making seven figures while teachers, nurses, and social workers are barely breaking minimum wage. With low wages and low job satisfaction there is little incentive to add value to a company. There is significant evidence that abolishing the minimum wage and creating a work environment that reflects the free market would help right the market by drastically reducing prices. It would also allow employers to give more frequent raises to those employees who do add value.

  3. Just released on Friday, the government said that 88,000 jobs have been created in March alone. Although this number is not as high as they projected, this follows the decreasing unemployment rate trend over the past several months. As unemployment levels decrease however, the growth rate is still very low. It seems like everything that the government has been doing over the past few years to grow back from the depression is not helping to stimulate the economy. This article touches on the fact that CEO salaries have been largely unaffected by this economic climate, while entry and low level positions take the brunt of the impact. In a low growth environment it is a very difficult challenge to reduce the income gap as companies are reluctant to increase salaries and offer bonuses in fear of another recession occurring. I believe that ultimately it must come down to the employee. The employee will have to show the company that they deserve a promotion and to be recognized for their efforts. Everyone would like a higher salary, but with limited resources, at the end of the day those who go beyond the call of duty ultimately will be rewarded.

  4. I agree with ZJones. The employment structure of the United States is broken; however, there isn’t much that can be done to fix this issue other than a rise in education. On the other hand, even with more people getting a bachelors degree it will just create a demand for more higher paying jobs and contribute to the issue at hand. With CEO’s of failing company making millions and teachers or fire fighters making very small amounts of money in comparison it makes you wonder what if it was different. All in all, at the end of the day, the higher paid jobs go to the highly educated or extremely privileged individuals (athletes, lotto winners etc). People always complain about how athletes and celebrities make so much money and how this shouldn’t happen. Well, as long as they continue to get views and their fans continue to grow more money will flow it. Is it the governments fault or fault of the people?

  5. This post made me think about my husband’s wage expectation for many years when he worked for a very profitable company. My husband was one of the top employees there, and he added more value to his work for his employer. However, many people from his workplace were leaving because of money issue. From my point of you, CEO and CFO of the company did not value their workers, and they were getting higher salaries while taking pennies from the employees.
    In today’s economy, where it is hard to find a job and many businesses don’t have to fight for high educated employees because there are many educated people who cannot find jobs. Moreover, high top employees would expect an increase in their salaries, and low top employees would stay at the current minimum wage in Illinois, which is $8.25 as for January 1, 2013. Another thing to consider is how US citizens are able to live in this country with such a low wage pay? I am not sure why because we see that everything is getting more and more expensive.

  6. I believe the gap in pay is unfair as CEO’s keep getting higher wages for the leadership they are bringing, but that would not be possible if their workforce was not performing. I believe both should be compensated for their efforts but it is clear that the value is being placed on the CEO’s. Although I do believe that there have been more job openings, many people are not qualified for the jobs that are being created. To make a difference, people should demand more educational opportunities to be available to them so people could become better qualified for the jobs that are opening up. I believe people would take the opportunity to better themselves if they had those opportunities available to become more educated and more qualified to able to fill those open positions. I believe this has to do with the government being able to provide programs or help to people who do not have the means to do it on their own. Instead of foreign affairs and defense spending, the government could invest in itself and provide more educational and training resources to people so they could help the economy by being qualified to enter the workforce.

  7. The gap in the wage between the the two classes getting larger may not seem fair to much of the workforce however, the gap exists because of the increase in production by the company as a result of the systems put in place by the top level management. The fact is, that the amount of skill required from the worker in a company is no more than it was pre-recession, however the CEO and the managing level of management has to develop more efficient systems and production methods. More capital for research and development of consumer wants needs to be carried out. New methods need to be implemented and if the CEOs and their constituents can effectively increase production then they should reap the benefits. There is no reason to over-compensate a worker for completing the same level of task.

    In the long run labor unions are detrimental to long term success because wages and benefits need to be negotiated on a large scale basis and by doing this, the company cannot maximize it wage structure and tailor it per employee. Instead they must create a deal that accommodates everyone and on a large scale this could prove to affect profits in the long run for a company.

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