, Director, McKinsey Global Institute, Jaana Remes, Parnter, McKinsey Global Institute, and Jan Miscke, Senior Fellow, McKinsey Global Institute, “The U.S. Economy Is Suffering from Low Demand. Higher Wages Would Help,” HARVARD BUSINESS REVIEW, 2—21— 18 , , accessed 5-3-18. Today, there is concern about where the next wave of growth will come from. Some prominent economists worry that we may be stuck in a vicious cycle of economic underperformance for some time. Our analyses strongly suggest that supporting sustained demand growth needs to be part of the answer. Demand may deserve attention to help boost productivity growth not only during the recovery from the financial crisis but also in terms of longer-term structural leakages and their impact on productivity. Suitable tools for this longer-term situation include: focusing on productive investment as a fiscal priority, growing the purchasing power of low-income consumers with the highest propensity to consume, unlocking private business and residential investment, and supporting worker training and transition programs to ensure that periods of transition do not disrupt incomes. Companies play a key role in promoting growth through investment and innovation as well as supporting their workforce through training programs. Yet companies may also want to consider the words of Ford when he said: “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.” While this is certainly not true for individual companies, it is true for the broader economy, and we might be at a rare point where the representatives of employees and employers alike share a common interest in healthy wage growth.
Wages Impact: Economy Internal—Consumer Spending / Demand Wages are key to consumer spending—vital to the overall economy Lara Rhame , Chief U.S. Economist, “The Chilling Prospect of Colling Consumption,” FS Investments, 10—25— 17 , , accessed 4-10-18. Consumers are the engine that drives our economy, making up 69% of U.S. economic activity. Although playing their part with steady spending, consumers are increasingly drawing from savings rather than wage increases to fuel this activity. Despite surging consumer confidence, sluggish wage growth may put pressure on spending, and a slowdown would pull overall U.S. growth lower at a time when it is already challenged. For investors, low growth could push equity valuations even further from economic fundamentals.
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