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US hit by low demand, wages pick up slightly: MGI study
28
Feb '18
Weak economic growth and rising income inequality in the United States have resulted in some major companies announcing plans to boost employee pay, said researchers from McKinsey Global Institute (MGI) in an article in ‘Harvard Business Review’. After stagnating for years, wages have begun picking up slightly, as has productivity growth, they wrote.

Economic growth has been stuck in low gear for almost a decade now, averaging around 2 per cent annually since 2010 while productivity growth, the key to increasing living standards, has been languishing near historic lows since the financial crisis, said the researchers. MGI is the business and economics research arm of McKinsey & Company.

Demand matters for productivity growth and increasing demand is key to restarting growth across advanced economies, wrote James Manyika, Jaana Remes and Jan Mischke after a year-long analysis of seven developed countries and six sectors.

Target raised its minimum wage to $11 late last year and committed to $15 by 2020. Walmart announced plans to match that increase to $11. In banking sector, Wells Fargo and Fifth Third Bancorp also announced pay hikes for minimum wage employees.

In retail, consumers shifting to higher-value goods contributed 45 per cent to the 1995-2000 retail productivity acceleration in the United States. This subsequently waned, dragging down productivity growth.

Some of the drags on demand for goods and services may be more structural than crises-related. Slowing population growth means less rapid expansion of the pool of consumers. And rising income inequality is shifting purchasing power from those most likely to spend to those more likely to save. This is reflected in slowing growth expectations in many markets, the researchers said.

Manyika is the San Francisco-based MGI director, Remes is a partner at MGI and Mischke is an MGI senior fellow based in Zurich. (DS)

Fibre2Fashion News Desk – India


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