Episode 3: Will You Get a Raise This Year?

Episode Summary

Executive Summary: The episode debates whether Americans will get a raise, using the 2015 Fed meeting as a backdrop to examine stagnant wage growth despite a solid labor recovery. The hosts conclude that raises are uneven: workers in tight labor markets and tech may see gains, but broad wage growth remains weak, held back by slack, low inflation, and productivity concerns.

Main Topics: Fed interest-rate decision and economic backdrop (Priority: 5/5): The hosts open with a playful prediction game around the Federal Reserve’s September meeting, emphasizing how close and consequential the decision is for markets and the broader economy. Stagnant wage growth in the U.S. (Priority: 5/5): They review wage data showing that paychecks have barely improved during the recovery, despite job growth and a strengthening labor market. Why wages remain weak (Priority: 5/5): Several theories are discussed, including pent-up wage deflation, lingering labor-market slack, low productivity growth, and firms substituting perks for raises. Industry differences in raise prospects (Priority: 4/5): Using job-openings and labor-turnover data, the hosts show that wage outcomes vary sharply by sector, with some industries tighter than others. Technology, inflation, and compensation dynamics (Priority: 4/5): The discussion links tech to both higher wages in certain jobs and lower inflation, suggesting technology may be boosting productivity in some areas while suppressing price growth. Unequal wage gains across the income distribution (Priority: 4/5): The episode notes that higher earners are seeing stronger wage gains while lower earners lag or decline, reinforcing the recovery’s uneven benefits.

Key Arguments: Headline wage growth is weak: average hourly earnings are only slightly above recovery averages and remain well below normal historical growth rates. Median household income remains below pre-recession levels, so the recovery has not restored living standards broadly. The Fed’s labor-market gauge suggests slack still exists even when unemployment looks low, helping explain muted wage pressure. Some industries are tight enough to support wage gains, but cyclical sectors like manufacturing and construction still have excess labor. Low inflation reduces urgency for employers to raise pay because workers are not facing large price increases. Productivity growth has been weak, which may limit how much employers feel able to raise wages sustainably. Some firms may be offering perks such as vacation benefits instead of salary increases, muting headline wage data.

Data Points: Average hourly earnings growth: 2.2% year over year in August - Used as the main gauge of wage growth in the labor market Average wage growth during the recovery: 2.0% - Average since the recovery began in June 2009 Historical normal wage growth: 3% to 4% - Cited by economists as the typical healthy range Median household income change vs. 2007: 6.5% lower - Census Bureau income and poverty report U.S. unemployment rate: 5.1% - Presented as being near the Fed’s estimate of full employment Unemployed people per job opening in the U.S.: 1.4 - Derived from the JOLTS survey Financial activities job-openings ratio: 0.6 unemployed workers per opening - Tightest labor market among industries discussed Technology starting salary example: $129,500 to $183,000 - Big data engineer starting pay cited as especially strong Tech pay increase example: 9% jump from 2015 - Projected growth for specialized tech roles Median household income level: $53,657 in 2014 - Census Bureau figure, not statistically different from prior year after inflation Recovery duration referenced: 7th year - Hosts describe the economy as being in its seventh year of recovery

Pivotal Quotes: "The answer is, oh. My sources say no." — Magic 8 ball: Response to the question of whether the Fed would raise interest rates "paychecks don't look great right now" — Tori Stilwell: Summary of the wage environment in the U.S. recovery "The answer is very doubtful." — Magic 8 ball: Final response to whether Americans will get a raise this year

Implications: Broad wage growth is still muted, so many Americans may not feel the recovery in their paychecks. Raises are likelier in tight labor markets and specialized tech roles, while inflation and low productivity keep overall pay gains restrained.