Unemployment is down, yet pay raises aren’t up for everyone

Quick notes

  • 1 in 4 American workers reports they haven’t received a pay raise in years

  • Companies are prioritizing shareholder dividends over employee raises

  • Many employers are offering bonuses and benefits to offset the lack of pay raises

Currently, national unemployment is at 3.7%, a number that should excite economists and the labor force alike. However, the current unemployment rate doesn’t mean every American is benefiting from an excellent economy.

In fact, fewer Americans are getting a pay raise to keep up with inflation. This can create a bleak scenario for those who struggle to make ends meet. So, why is it so difficult for Americans to get a pay raise? What it comes down to are management priorities.

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Pay raises few and far between

A recent survey by Business Insider found that nearly 1 in 4 working Americans haven’t seen a pay raise in the last three years or never received an increase at all. Fourteen percent of those survey reported they hadn’t received a raise in three years, while 10% state they’ve never had a pay raise.

To make matters worse, wages aren’t keeping up with inflation – and they haven’t been for the last 44 years. Although wages have seen an increase of around 3% over the previous year, income inequality is increasing. This means the average American isn’t reaping the benefits of the country’s good economy.

Why should a pay raise matter?

For starters, giving employees a pay raise shows their employers value them and what they contribute to the company as a whole. Even small, annual raises can boost employee morale and satisfaction. What’s more, raises are known to encourage employees to work smarter and harder.

Increased wages have also been shown to boost the economy. If people have more money in their pockets, they’re more likely to spend it. This increase in spending allows businesses to thrive.

Shareholder dividends over-investing in employees

The lack of pay raises isn’t because companies are unsuccessful – it’s a matter of priorities. When you give an employee a pay raise, wages can become difficult to contain. Many workers will want an annual pay raise, and these are hard to shake once employees have gotten used to them.

Instead, shareholder dividends take priority over investing in employees. This is because giving cash back to shareholders enriches the price of the company’s stock.

Apple is an excellent example of what’s happening today. Last year, Apple announced its quarterly revenue grew $61 billion. With such leaps in revenue, you’d like the company would invest in its workers. Think again.

The lack of pay raises isn’t because companies are unsuccessful – it’s a matter of priorities. Today, shareholder dividends take priority over investing in employees. This is because giving cash back to shareholders enriches the price of the company’s stock.

Alternatively, Apple (which is valued at $250 billion) chose to distribute $210 billion to shareholders through stock buy-backs. While this might do wonders for Apple’s stock, it isn’t doing employees any favors.

Rather than giving employees raises, many companies are providing alternative compensation such as enhanced benefits, annual bonuses, and even more paid time off. This type of compensation may be attractive for the right employee, but others may need the immediate financial benefit of a higher hourly wage or salary.

Hopefully, companies take note and realize their businesses are nothing without their people.

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