The wage paradox

There are signs everywhere of an economic recovery in the U.S.: Consumer spending has increased, gasoline prices remain low, the housing market is beginning to rebound and the unemployment rate continues to drop. But there is an anomaly economists are trying to fully understand—U.S. workers have not seen wages increase to correspond with dropping unemployment rates.

As The Wall Street Journal wrote in a June 4 article: "When U.S. unemployment rates fall, conventional notions of supply and demand predict wages go up as firms bid for increasingly scarce workers." But this has not occurred.

The newspaper reports wages and salaries were up 2.6 percent during the first quarter of 2015 compared with 2014 and says: "But even at full employment … annual wage increases of 4 percent or more, common before the recession, would likely be replaced by gains of 3 percent to 3.5 percent."

Possible reasons for this include some employers are unwilling to take risks by paying higher wages for fear of the economy going south again; the hiring of workers for lower wages who had disappeared from unemployment tallies (temporary workers, part-time workers or retirees); and low wages that are being paid overseas.