The New York Times Wants You to Get a Raise

Raising interest rates before employment and wages have recovered would harm working people and the U.S. economy, The New York Times’ Editorial Board writes on Labor Day:

Policy makers should be focused on strategies to raise wages, but the opposite appears to be happening. Just as Congress enfeebled the economy by switching too soon from stimulus spending to budget cuts, Federal Reserve officials have all but vowed to begin raising interest rates this year. That move reflects a belief that the economy is returning to “normal,” but it would be premature, because today’s norm is an economy that is incapable of generating and sustaining broad prosperity.

In a healthy economy with upward mobility and a thriving middle class, hourly compensation (wages plus benefits) rises in line with labor productivity. But for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent. …

The Fed is a crucial player in reversing [declining wages], since one of its mandates is to foster full employment. Wage stagnation is a clear sign that the economy is not at full employment, which means it needs loose monetary policy, not tightening. An interest rate hike, by sending the wrong signal of economic health, could make it harder for labor groups and policy makers to assert the urgency of their efforts to raise pay.

Read more here.

— Posted by Alexander Reed Kelly.