Why You’re Not Getting a Raise

No matter where you are in the world, you’re probably not getting much of a raise—and chances are, that’s not changing any time soon.

Even though the job market is picking up in the U.S., Britain, Japan and a host of other countries, the growth in pay is disappointing global economists, government officials and families alike. In Germany—home to strong unions, record-low unemployment and booming exports—annual wage growth since 2013 has only averaged 2.1 percent.

The wage-growth gap has a nagging knock-on effect in the amount of disposable income just about everywhere, curbing consumer purchasing power and making people feel pinched more than they otherwise would. The gains in real personal disposable income have been maddeningly slow in places like the U.S., and some countries like Italy have even lost ground.

A lot has been written about why compensation isn’t picking up. Economists typically expect that a tight labor market will eventually mean that companies will have to start paying people more. But as more workers have come back into the labor force, that hasn't happened.

Even in Japan, where wages had been edging higher since mid-2014, pay is still now rising quite slowly—despite unemployment being near a two-year low. Total cash earnings for the Japanese rose 0.7 percent in May, and that was the biggest increase since July 2016.

And in China, where industrial profits are soaring and wage gains routinely topped 10 percent since the 1990s, increases are getting skimpier by the day. The strong currency and those steeper paychecks are seen as cutting into Chinese competitiveness.

In the U.S., one explanation for the slow wage growth can be found in a broader measure of unemployment, the U-6 rate. That rate—which includes people who are not actively looking for work but would want a job—is still above where it was in the last cycle. The U-6 is at 8.6 percent, which compares to a low of 7.9 percent in the previous expansion. Prior to that, the U-6 joblessness rate reached 6.8 percent in October 2000. Another measure, the employment-to-population ratio has been a better predictor of wages so far this cycle, and that indicator is still below where it was in the last recovery.

The forecasts for the next five years don't look particularly inspiring. Many places will see wage growth taper off.

The dramatic conclusion may be that as much as economists want to believe that true wage growth is just around the corner, it’s really not. And we all better get used to our paychecks pretty much staying where they are.