Lower-Paying Industries Are Seeing the Fastest Wage-Growth in the U.S.

Lower-paying industries see high pay raises.

Photographer: Patrick T. Fallon/Bloomberg

"Joe six-pack gets a raise," proclaim Bank of America Merrill Lynch economists Emanuella Enenajor and Lisa Berlin, commenting on the biggest source of upward pressure on U.S. wages in 2016. The duo found that industries which rank in the bottom 20 percent by pay are seeing incomes rise at a much faster clip than higher-paying sectors.

Source: Bank of America

A back-of-the envelope analysis conducted by Enenajor and Berlin suggests that minimum wage increases in U.S. states this year account for roughly half of the outperformance in wage growth at the lower end.

The other half of the story? The supply of labor for these lower-paying jobs, which typically don't require higher education degrees, has been declining, so employers are being forced to pay higher wages to retain workers.

Corporate earnings season brought warnings from executives at Starbucks Corp. and Chipotle Mexican Grill, Inc. that this kind of wage inflation is here to stay. Also, employees at food and beverage stores, good services and drinking places, and gasoline stations are seeing an acute rise in pay levels so far this year, according to Merrill Lynch. 

July's job report also testified to this particularly tight labor market among less-educated workers. Unemployment among Americans 25 or over with less than a high school diploma hit its lowest level on record in the month, with the unemployment rate for this cohort sinking to its lowest level in nearly a decade.

But labor supply dynamics, the economists note, differ greatly by educational attainment. As such, Enenajor and Berlin don't see this robust wage growth in low-paying industries broadening meaningfully any time soon.


Source: Bank of America

"In our view, wage growth outside of low pay sectors is likely to gradually increase as the overall labor market tightens," the economists conclude. "However, the trend will be slow, and will likely remain below that of low pay sectors, as the labor force of workers with higher educational attainment (who would presumably be competing for higher-paid work) has been expanding, pointing to a tempering force on wages." 

Policymakers at the Federal Reserve are counting on a pick-up in wage growth to give them more confidence that the labor market is approaching full employment and that inflation will return to its 2-percent target.

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