Wage Gains Prove Elusive Even as U.S. Job Market Rebounds
Employers will probably boost payrolls and the jobless rate is projected to keep sliding in 2014 as the U.S. economy strengthens. The one element missing will be bigger wage gains.
Earnings per hour for private-sector workers have climbed 2 percent a year on average since 2011 compared with a 3.2 percent gain in 2007, the last year of the previous expansion. Adjusted for inflation, they’ve barely grown at all.
Paychecks are “probably going to be the last area of the labor market to see a pickup,” said Mike Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and the second-best forecaster of personal incomes for the past two years, according to data compiled by Bloomberg. “It’s definitely one of the laggard features” and “an important reason why it’s been difficult to generate sustained periods of very strong consumer spending.”
The still-large pool of jobless Americans -- 10.4 million in December -- means applicants have limited bargaining power. Throw in longstanding trends such as employers’ ability to tap a global marketplace for workers, labor-saving technology, and a decline in union membership, and it’s easier to understand why there will be a delay.
Most of the increase in total income so far in the expansion has come from gains in employment rather than higher salaries, according to Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit.
“We’re just now getting rid of a lot of slack in the labor market,” said Price, the second-best payrolls forecaster in the past two years, according to data compiled by Bloomberg. Hourly pay is “likely to remain somewhat stagnant, but should gain a little bit of traction in the second half of the year.”
The pool of available workers, a favorite metric of Alan Greenspan when he was chairman of the Federal Reserve, swells to 16.5 million if you include those not in the workforce who want a job. While down from a record 21.4 million in October 2009, they represent 6.7 percent of the working-age population, the highest for any period prior to the last recession since 1995.
The number of long-term unemployed, those who’ve been jobless for 27 weeks or more, is also contributing to the poor performance of wages.
Those workers often have to accept a lower salary when they land another job, and suffer from reduced earnings 10 to 15 years longer than people who are unemployed for shorter periods, according to Boston Fed research.
A similar effect stems from an aging workforce, which will depress income growth because people who take up other jobs after career retirement tend to earn less than they made previously, other reports showed.
One of those waiting for a break is Norma Benavides, a separated 45 year-old mother of two and a teaching assistant at a day-care facility in Washington. She says her employer won’t give her a raise until she receives her degree in childhood development and special education, which she’s been pursuing for two and a half years.
“It’s very hard,” said Benavides, who immigrated from El Salvador 20 years ago and has seen her competition for jobs intensify as more people gravitate to the world’s largest economy seeking employment.
Bigger gains in pay may be years away as immigration and the rise of women in the workforce after World War II have increased the supply of labor, said Boston University’s Peter Doeringer. The minimum wage also isn’t keeping up with other earnings, and unions -- formed to ensure gains in prosperity were shared with workers -- are less in favor, he said.
In the short term, “it’s the employment recovery that really drives earning changes,” said Doeringer, an economics professor who’s been watching labor-market trends for the past four decades. “My time frame would be two, three, four years just to get us back to where we were.”
Union membership fell to 11.3 percent of workers in 2012 from 20.1 percent in 1983, Labor Department data show. Legislation pushing for a higher minimum wage endorsed by President Barack Obama languishes in Congress even as the initiative has gained traction in some states. The federally mandated minimum was pushed up to $7.25 per hour in 2009, where it’s been since.
Matthew Herring, 29, makes his state’s minimum wage of $8.25 as a trainee at a McDonald’s Corp. (MCD) restaurant in Chicago. It “barely” allows him to save $25 a month after he pays the bills, even with the help of government benefits, including subsidized housing and food stamps.
“I don’t want to be on government assistance all my life,” said Herring, who would like to return to school to finish work on a degree in business administration and start a tow-truck business. “We just need more money.”
Not all agree the rebound in wages will take much longer. Retiring baby boomers probably won’t seek other work, trimming the number of those competing for lower-paying jobs and pushing down the jobless rate, which bodes well for incomes, said Barclays Plc’s New York-based Chief U.S. Economist Dean Maki.
“Wage growth will be firming this year,” Maki said.
Wages have been sticky even as the job market healed. The unemployment rate, at 6.7 percent in December, has dropped from a post-recession peak of 10 percent in October 2009. Last year’s 1.2 percentage-point decrease was the biggest since 1983.
The progress is buoying people’s outlook, according to data from Glassdoor Inc., a job-search website. The share of workers expecting a raise in the next year rose to 42 percent in December, the highest in almost two years, the survey showed.
JPMorgan’s Feroli, too, sees some positive signs. The share of the labor force out of work for less than six months is dropping, and further declines will begin to tilt bargaining power back toward workers from employers, he said.
In the meantime, “the wage growth we’ve had is below mediocre.”