Payroll tax no help with wage decline

Are we going through a wage deflation?

For the past 17 months, wage growth hasn’t even risen past the rate of inflation. Higher payroll taxes will likely make that trend continue.

Yearly wage growth has been below a stagnant 2% for production workers and nonsupervisors for the past year and a half. And now with payroll tax hikes, that lack of wage growth is going to feel even worse, analysts say. While the 2% bump in payroll taxes is shrinking take-home pay, higher-earners are seeing bigger rates on income and capital gains.

Credit Suisse analysts found the payroll tax hike by itself would clear out 2012’s nominal gains in one month, if January earnings stay at the same level as December. Anthony Sanders, finance professor at George Mason University, told Investor’s Business Daily, “We’re actually having a wage deflation.”

Perhaps a silver lining: Though average wages fell annually for most of the past two years, jobs are being created, but with low wages. “There are employment opportunities, but they don’t pay the way they used to,” Sanders said. The Bureau of Labor Statistics also shows a growing number of new jobs are becoming part-time, as employers try to evade Obamacare by employing less full-time and more part-time.

What are your thoughts on the higher payroll tax and its effects on so far? Let us know in the comments below.