This content is from: Portfolio

Under Pressure to Raise Wages, Companies May Stand to Gain

For employers, the potential benefits of paying workers more include greater productivity and higher profits.

The working stiff has never had so many powerful friends. British Prime Minister David Cameron, Bank of Japan governor Haruhiko Kuroda and U.S. President Barack Obama are just some of the politicians and policymakers who have recently called for companies to raise wages.

They’ve got a point. In Organization for Economic Cooperation and Development countries excluding Mexico, average inflation-adjusted wages grew just 0.3 percent annually between 2007 and 2013, notes economist Jan Zilinsky, a research analyst with the Washington-based Peter G. Peterson Institute for International Economics. Although labor demand alone may not be strong enough to warrant it, Zilinsky thinks political and social pressures will encourage modest U.S. hikes. “The combination of all those factors will determine wage growth,” he says, also referring to studies showing that the benefits of higher wages include more-productive workers.

Michael Madowitz, an economist with Washington-based think tank the Center for American Progress, says a tighter U.S. labor market will probably put upward pressure on wages this year and fuel economic expansion: “To the extent that raising wages increases demand for goods and services and productive investments, it may have the potential to raise returns on some of these investments.” • •

Get more on macro.

Related Content