Why You Haven’t Gotten a Raise

Recent grads: You may be stuck with your entry-level salary for longer than you think.

Despite a string of encouraging jobs reports, a technically healthy unemployment rate and talk of a recovering economy, employed Americans have yet to reap the benefits.

What gives?

Help Me I’m Poor

Traditionally, low unemployment and a healthy labor market like ours would require employers to raise wages in order to attract and retain talent. A “tight” labor market affords unsatisfied employees the leverage to negotiate higher wages.

This time around, American workers have had no such luck. Average hourly earnings have increased by just 2 percent since January 2015 and have remained largely stagnant since 2010. In fact, today’s average hourly wage has about the same purchasing power as it did in 1979. The $4.03 per hour rate in 1973 now has the same purchasing power as $22.41 per hour would today.

Source: The New York Times

But don’t believe everything you read; our labor market isn’t as tight as the headlines portray.

Optimistic economists often fail to mention the surplus of working-age Americans still in need of a job.

In addition to the 8.3 million unemployed persons counted in the unemployment rate, there’s an additional 1.9 million that simply aren’t applying for jobs and another 6.5 million that work part-time because there are no full-time positions available.

Essentially, there’s slack in our labor market, meaning there are more people in need of a job than jobs available. For those actually participating in the job market, there is always someone ready and willing to do your job for less.

Employers know this, and feel zero pressure to give you a raise. And you know it, too. Why else would you take a job outside your desired industry that makes just $28,000 a year? Because you’re desperate. We all are.

Desperate Times call for Low-Wage Jobs

Entry-level salary expectations have lowered substantially. Americans now feel #blessed to make $30K a year although rent, taxes and the cost of living continue to rise. College grads are now more than happy to continue their Ramen Noodle diet for one more year and accept the fact that writing a rent check will feel like severing a limb.

But it’s catching up with us. A Pew Research survey from August 2014 reported that 56 percent of American families have fallen behind their cost of living – up from 44 percent in September 2007.

A fear of unemployment also makes workers less likely to ask for a raise. Employees are reluctant to complicate their tenuous state of employment by asking for more money, even when they deserve it. It’s the survival of the fittest. 

Is There a Silver Lining?

Yes. For the first time since 2008, the share of businesses expecting to increase wages in the coming months is finally increasing.

This is in line with a prediction made by Janet Yellen, who believes we will soon be relieved of our suffering.

Termed the “pent-up wage deflation” theory, economists surmise that the low wages now are payback for high wages during the Great Recession (for those that managed to keep their jobs, of course). To raise morale after company-wide lay offs in 2008, some CEOs granted the remaining employees raises. Unfortunately, this led bosses to do little in the way of wage increases since.

But D-Day is fast approaching.

Our Take

Stagnant wages have been particularly hard on millennial-aged workers new to the real world.

Seeking relief from record-setting student loan debt and rising tuition costs, college grads were instead greeted by a tepid labor market and low wages. Rather than saving up and paying off loans, we’re trapped in a prison of debt. As a result, our unusually frugal spending habits are doing nothing to temper the sting of the lingering recession.

In short, America needs us to have disposable income. Putting money back in the hands of America’s most financially irresponsible would pump some much needed funds back into the economy. If entry-level workers all got a raise, the demand for tacos, night life and kitschy bohemian clothing would surely rise. Meeting that demand would create jobs and spur economic growth. It’s a win-win.

I speak on behalf of all millennials when I say that we’re more than willing to make bad decisions to benefit America.