At the same time that workers have been reluctant to seek higher wages, firms have been reluctant to grant higher wages. This is partly because intense foreign competition has resulted in a loss of pricing power for many US manufacturers. To preserve market share, companies are compelled to contain wage costs. The Internet may also have played a part in dampening wages. The recent upturn in productivity growth has also dampened labour cost pressures.
Higher productivity allows firms to meet rising demand with the same number of workers.
As a result, there is less pressure on companies to boost wages to attract new workers. As well, rising productivity reinforces the virtuous cycle of low unit labour costs and low inflation expectations, which in turn begets low wage growth and low unit labour costs. Unfortunately, the former is likely to dissipate in the year ahead while the latter is likely to persist. The recent and prospective upturn in commodity prices will reduce purchasing power, thereby encouraging workers to seek compensating wage increases. As inflation and inflation expectations rise, so too will annual wage settlements.