Home > News > Research > Sluggish Wage Growth Leads to Lagging Retirement Savings, Professor Says

ResearchOctober 25, 2019

Sluggish Wage Growth Leads to Lagging Retirement Savings, Professor Says

Despite low joblessness, academic concludes, most work still fails to generate enough money for later years.

The link between low unemployment and wage gains is broken, according to New School economics professor Teresa Ghilarducci—and that has undermined retirement savings.

September’s employment report showed that average hourly compensation for private sector workers rose 2.9%, which was faster than the 1.7% rise in annual inflation, but nothing special. Meanwhile, unemployment is at a 50-year low. This persistent slow growth is evidence of continuing structural problems in the US economy.

The Economic Policy Institute calculates a target for wage growth based on the Federal Reserve’s inflation target of 2%, the current productivity growth trend, and the relative shares of national income going to labor and capital. Wages should grow by 3.5% to 4%, EPI finds, not including increases in labor’s overall economic share.

For retirement funds, “stagnant wages mean stagnant pension contributions,” said Ghilarducci, a noted scholar on retirement and labor issues, wrote in an email, following her latest published work on those subjects. All retirement savings, except for traditional defined benefit plans, are voluntary contributions and each dollar competes with all other expenses, she pointed out. Research shows that wages for typical workers, adjusted for inflation, declines after about age 45.

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That fact means the so-called catch-up contributions—where people over 50 can put more into their tax deferred retirement accounts—is a benefit just for the privileged few who have high incomes that increase after age 50. Only those at the top 20% have enjoyed steady wage increases over the past 30 years, she said.

At least, she went on, low unemployment rates permit some to make retirement plan contributions, and people are less tempted to take money out of their 401(k)s early.

“The only thing I worry about are in periods of low employment, workers go from job to job searching for higher wages and having to wait a year before they can join their company‘s 401(k),” she said.

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Tags: Economic Policy Institute, Unemployment, wage gains

Home > News > Newsmakers > Companies Should Pay Better, Survey from Paul Tudor Jones Group Says

Newsmakers October 25, 2019

Companies Should Pay Better, Survey from Paul Tudor Jones Group Says

Poll finds compensation is top issue in ways businesses could improve Americans’ lives.

By Larry Light

Improved pay is the top priority of Americans in finding means to make companies create a better economy that benefits more people, according to a poll by Just Capital, a group funded by hedge fund honcho Paul Tudor Jones.

In the poll, paying a “fair” or “living” wage was the choice in 12.2% of the respondents. Wages growth has nosed up recently, but still lags way behind where it would’ve been if earlier eras’ norms for raises had been in effect. The General Motors strike centers on restoring such lost income.

Just Capital asked more than 96,000 Americans what companies can do, as it said in a statement, to “restore declining trust and create an economy that works for more Americans.” The biggest poll finding was that companies must “invest” in their workers.

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Treating customers and communities well—which is described as “stakeholders” —placed second and third. Helping the environment was fourth, and “serving shareholders through good governance” was fifth. Note that the shareholders part is attached to the idealistic goal of better governance, something dear to the heart of corporate activists. (Just surveys also make clear that the public also cares about the more traditional capitalist objective of making a profit.)

The poll findings mirror a recent statement from the Business Roundtable, comprised of chief executives from the largest US companies, that the purpose of a corporation no longer should be confined to advancing the interests of its shareholders alone. Instead, the group declared, it must deal ethically with others, boost employees’ lots, and protect the environment.

Billionaire Jones formed Just Capital to promote this notion. In addition to its surveys, the organization sponsors an exchange-traded fund that invests in companies it considers to be “just.” Jones also is the founder of the Robin Hood Foundation, an anti-poverty charity.

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