Question

Average wages and salaries for most Americans have not kept pace with inflation. What impact does this have on aggregate demand? Average wages have been hit by technological change (think robots) and international trade (cheaper wages abroad). What policies or changes would help boost average wages?

Answer 1

American workers are getting squeezed, not able to get ahead because anemic growth in their wages is not keeping up with the fast rise in prices for food, fuel and other necessities which badly affects their demand .

Surveys show meager growth in average wages of 1.7 percent in the past year, while surged in gasoline and food prices have pushed the inflation rate to more than 2 percent. Growth in other sources of income such as rents, interest and Social Security also has been weak or nonexistent.

Typical workers are no longer able to keep up with the rising cost of living — something they managed to do even during the recession. Retirees with fixed income are in worse shape because they did not receive even a cost-of-living adjustment in their Social Security benefits last year. That is why the demand of the workers is reducing day by day.

Policies or changes which will help you boost the average wages :

On March 29, Sen. Tom Harkin introduced the Rebuild America Act, which includes an increase in the federal minimum wage from the current $7.25 to $9.80 via three incremental increases of $0.85, after which it would be indexed to inflation. The tipped minimum wage (the minimum wage paid to workers who earn a portion of their wages in tips) would also be increased in $0.85 increments from its current value of $2.13 per hour, where it has languished since 1996, until it reaches 70 percent of the regular minimum wage. On July 26, Sen. Harkin introduced a stand-alone minimum-wage bill containing these provisions, S. 3453, The Fair Minimum Wage Act of 2012.

Raising the minimum wage would help workers still reeling from the effects of the recession. The resulting impact on the overall economy would be demonstrably positive, as minimum-wage workers would spend their new earnings immediately, generating a positive impact on GDP and related modest employment growth.