Soaring corporate profits, record-low unemployment and … stagnant wages? Workers may be feeling a bit underwhelmed by their paychecks these days, even in the midst of what experts call a strong economy.
They’re on to something. Over the past few decades, pay increases stalled out for many laborers, and the Great Recession, from the end of 2007 through the middle of 2009, didn’t help matters.
Although the race for wage growth has generally been sluggish, lately women, people with college degrees, workers at the high end of the pay spectrum and those who switch jobs have been winners. Read on to find out why and learn about shifts that may be stirring.
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Who’s Making More?
In the mid-20th century, workers at the lower end of the pay scale saw their incomes rise faster than did their better-paid counterparts. Since 1979, that pattern has reversed, according to research from the Brookings Institution. Over the past four decades, workers at the top of the pay scale have seen the largest percent increase in real wages (pay adjusted for inflation), while those in the bottom fifth have actually seen their real wages decline in value.
Economists have several theories to explain the phenomenon, says Jay Shambaugh, senior fellow in economic studies at the Brookings Institution. Weaker unions, the proliferation of noncompete contracts and the consolidation of companies have made it harder for workers to effectively bargain for better pay. The federal minimum wage has not kept pace with rising costs of living, and fewer people than previously are moving to find better jobs.
Another possible contributing factor: The U.S. workforce is aging. Young workers, whose salaries start low, typically experience greater wage increases than their older colleagues, says John Robertson, senior policy adviser and economist at the Federal Reserve Bank of Atlanta: “You’re not going to get the same growth as when you were early in your career. That’s a meaningful difference.” Accordingly, some economists think that older workers making up a larger share of the labor market inflicts downward pressure on wage growth.
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Since 1979, white, black and Hispanic women have seen their real wages increase, while their male counterparts have seen their real wages fall.
That’s partly due to the fact that more women have been earning bachelor’s and other advanced degrees. The pay gap between people with college credentials and those without is higher today than in years past.
Note, though, that in each racial category, men still outearn women, and white men still make the most money of all.
Although these trends have developed over decades, the recent Great Recession had a negative influence on pay, especially on already-vulnerable workers.
“In general, we see in recessions that the most marginalized populations get hit hardest fastest and take the longest to recover,” Shambaugh says. “People with less education and minority workers lose jobs faster and their unemployment goes up higher. It takes them longer to get to a position in the economy where they recoup their losses.”
During the past 10 years of recovery, productivity has remained relatively low, which has also prevented salaries from rising.
“What drives wages over really long periods of time is that workers can make more stuff,” Shambaugh says. “If productivity isn’t high, wage growth is not high.”
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Starting to Shift
Change may be underway. In October 2018, wages saw their largest year-over-year increase since 2009 — and the bump exceeded the inflation rate, the Wall Street Journal reported.
In the very recent past, low-wage workers saw greater median wage growth than high-wage workers, according to data from the Federal Reserve Bank of Atlanta. They may have local and state minimum wage increases to thank, Shambaugh says, noting that recent employment reports show pay growth in the retail and leisure and hospitality industries, which employ lots of low-wage workers.
And the strong economy may finally be forcing companies to rethink their pay structures. Typically, people who switch jobs enjoy more wage growth than people who stay in their roles, according to data from the Federal Reserve Bank of Atlanta. But in the past few months, job stayers have seen a sharp rise in wages, closing the usual gap.
“We know that people are quitting jobs at a pretty high rate,” Robertson says. That puts pressure on employers to make changes that convince workers to stick around: “Maybe one of the strategies is shifting to larger pay increases for current staff.”
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Where Is the Wage Growth? originally appeared on usnews.com
