As the unemployment dropped to its lowest rate since 1969 – 3.7 percent – wages only increased 0.2 percent after inflation. This is not considered the norm as when the jobless rate reaches 4 percent – considered full employment – real wages generally climb faster than inflation.
One explanation is that the unemployment rate only accounts for those actively looking for work; it does not include those “discouraged workers.” When looked at in this light the percentage of the population ages 25 to 64 that is working is still lower than it was in 2007 and considerably lower than in 2000.
One ramification of this dichotomy is that while consumer spending is increasing at a fast pace, incomes are not, forcing consumers to borrow more and save less.
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