Fed's Dudley:Modest Wage Growth Reflects Sluggish Productivity

--Measures of Underemployment Near Pre-Crisis Levels

--Continue to Expect Moderate Growth, Further Strengthening in Labor Market

--Wages Increasing More Rapidly For Top Earners 

By Jean Yung

     WASHINGTON (MNI) - Wage growth has been modest even as unemployment has

declined to a 16-year low of 4.3%, likely reflecting the sluggish pace of

productivity growth in recent years, and that is expected to continue, New York

Federal Reserve Bank President William Dudley said Thursday. 

     "Our outlook anticipates a continued moderate growth trend, with some

further strengthening in the labor market and an increase in inflation over the

medium term toward our objective of 2 percent," Dudley said in a press briefing

in New York. 

     Though the post-crisis expansion is now the third longest on record, it has

been marked by a relatively weak pace of growth at about the average of 2.1%

since mid-2009. 

     Measures of underemployment have "improved considerably and are near

pre-crisis levels," but the average worker has not enjoyed much improvement in

his earnings, Dudley said. 

     "Wage growth has also been comparatively modest even as unemployment has

declined. In part, this likely reflects the fact that productivity growth has

been sluggish compared to historical experience," Dudley said. 

     "As we consider how to address the issues of income inequality and

mobility, we should also consider how to improve flagging productivity growth,

because that would help raise the level of household income." 

     For more than three decades, wages have increased more rapidly for top

earners than those toward the bottom of the income distribution, Dudley said.

That has also resulted in higher barriers to economic mobility and parents who

are increasingly pessimistic about their children's futures. 

     Because structural factors such as technological change and globalization

are big drivers behind the increase in wage inequality, there is not as much

that monetary policy can do, Dudley said. 

     Still, the Fed strives to understand the causes and consequences of

economic inequality, Dudley said. Its research has found that improving access

and quality of education, especially early childhood education, could improve

rates of return of lifetime earnings. 

     Policymakers should also step up efforts to help workers displaced by

technology to build new skills and adapt to those changes, Dudley said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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