WASHINGTON — The fall in the percentage of economic growth flowing to workers is “very troubling,” a worrisome sign in an otherwise bright American economy, Federal Reserve Chair Jerome Powell told a Senate panel Tuesday.
Testifying in front of the Senate Banking Committee, Powell expressed concern that the share of profits going to American labor had fallen “precipitously” for more than a decade and was not reversing course.
In 2000, wages and salaries for American workers accounted for about 66 percent of the overall economy. That rate has fallen to about 62 percent, although the decline has leveled off since the end of the Great Recession, according to statistics compiled by the Brookings Institute and cited at Tuesday’s hearing by Sen. Jack Reed, D-R.I.
“We want an economy that works for everyone,” said Powell, who was appointed by President Trump last fall to oversee the nation’s central bank. “In the last five years or so, labor share of profits has been sideways. This is very much akin to the flattening out of median incomes over the last few decades.”
The strength of the overall economy has been widely expected to eventually translate into higher wages for workers, but pay increases so far have been disappointing. Job growth, at more than 215,000 new net jobs every month, remains healthy, with the overall unemployment rate continuing to tick down, and the U.S. economy is growing at a healthy clip, powered in part by strong consumer spending and business investment, Powell said.
But average hourly wages for most American workers have been stalled – and by at least one measure, have fallen when accounting for inflation. Powell did express optimism that workers would soon enjoy more robust paychecks.
Powell said the falling decline of labor’s share of national profits stemmed in part from “global factors” that fall outside the Federal Reserve’s purview. A tight market, like the kind the United States currently has, should result in eventual wage growth, he said.
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