Why Wage Growth Is So Slow Even in a Hiring Boom
With a pickup in wage growth almost nonexistent despite massive job gains, economists are searching for sources of labor market slack to help explain the gap. Researchers at the Federal Reserve Bank of Boston may have just found some.
Anat Bracha and Mary Burke, both senior economists at the bank, conducted a December 2013 survey investigating the prevalence of informal work -- side jobs such as babysitting, dog-walking, selling stuff on the Internet or renting out your apartment. Earnings from these jobs are "presumably not reported in full to the Internal Revenue Service and which typically do not constitute a dominant or complete source of income," according to the report.
The economists found 44 percent of respondents engaged in such work over the previous two years, with earning money being the most widely cited reason (versus rationales like meeting people or acquiring new job-related skills).
Employees in formal part-time jobs in particular are most likely to have a side-job, with almost 60 percent saying they participated in such activities, the researchers found. Part-time workers also seem to have benefited the most from informal work, with nearly 20 percent saying that it "very much" helped them offset the negative effects of the recession.
All that "suggests that there may be a significant willingness among members of this group to supply additional hours to formal jobs as labor demand strengthens," the economists wrote.
They also found that 26 percent of the people who get classified as not in the labor force by the Labor Department -- those who are not employed and not looking for a job -- have actually worked informally in the past two years. That supports Fed Chair Janet Yellen's sense that there is still ``cyclical weakness'' in the labor market not captured by the 5.5 percent unemployment rate.
"Our findings indicate that, as formal wages increase in an improving labor market, individuals may switch from informal to formal work," the researchers wrote. "More important, our data suggest that at least some of this potential labor supply may not be showing up in official measures of labor market slack."
However, don't expect Internet-based applications such as Uber, Airbnb and TaskRabbit, which all facilitate in providing side-work, to disappear as the economic recovery grinds on, the Boston Fed economists wrote. Trends such as more widespread Internet access and cheaper mobile devices lead the researchers to expect "participation in the peer-to-peer economy to continue to grow over time even in the face of an improving labor market."