In yesterday’s post, I indicated that the principal reasons for wage stagnation were globalization, technological improvements, and the decline of unions, but I also suggested that conditions could and would change in the foreseeable future. Here is my thinking:
1. The off-shoring of American manufacturing has gone about as far as it can. While labor costs are obviously a big concern to American manufacturers, they also worry about transportation and energy costs, the adequacy of infrastructure, political stability, and their ability to react quickly to changes in their markets. Many of these factors are starting to turn in favor of production at home. Companies seeking lower labor costs in the future will probably be moving from China to some other location in Southeast Asia or Africa, not from the US to another country. If American workers lose their fear of foreign competition, wage increases should be the result.
2. Demographic changes favor workers. The size of the workforce is declining as a result of baby boomer retirements. This is the principal (if unspoken) reason the GOP candidates for President are all determined to raise the retirement age. A smaller workforce should drive up wages.
3. Technological change is a wild card. No one really knows what impact technological change will have on employment in the future. History tells us we should be optimistic about this, but this is a “known unknown.” It is likely to vary wildly from job to job.