US wages are rising, maybe faster than you think

Median weekly earnings jumped 4.2 percent in the past 12 months, the fastest gain since 2007. And demographic trends suggest the economy’s ‘slice of pie’ for workers could keep growing.

Here’s a Labor Day quiz: Whose pay rose at the fastest rate in the past year – lawyers or truckers? PhDs or workers who didn’t graduate from high school? The top 10 percent of earners or the bottom 10 percent?

If you opted for the answers that may seem surprising – the second ones in each of those pairings – then congratulations! You’re especially attuned to a recent turn in the US economy. In percentage terms, the workers in category "b" outdid those in category "a" in the past 12 months. It’s a sign that after eight years of an unusually sluggish recovery, continued growth and very low unemployment are beginning to deliver pay gains across the board.

This turnaround does not make up for the years in which better skilled, higher educated, and wealthier workers enjoyed most of the gains after the Great Recession. And it’s far too recent to have done much to alleviate the growing inequality between the rich and the poor. Nevertheless, it does suggest that the current expansion is finally buoying the incomes of a broad swath of working Americans, from waitresses to union members.

“Wages are growing faster in the aggregate than you think,” says Mary Daly, director of research at the San Francisco Federal Reserve Bank.

“Unions have had a good year,” Richard Trumka, head of the AFL-CIO labor federation, told reporters at a breakfast hosted by The Christian Science Monitor on Wednesday. “We raised wages for our members higher than we have for a while.”

Signs of stronger wage growth are popping up everywhere. This month, Elise Gould of the union-backed Economic Policy Institute found that average wages for workers without a high school diploma grew 1.9 percent in the 12 months ending in June; for PhDs, they grew only 0.3 percent. Ditto for those at the bottom 10 percent of the income ladder: 5 percent wage growth, versus 2.9 percent for those at the top 10 percent.

Similarly, truckers saw the biggest pay raises – 5.7 percent – in the past year ending in August, in a report from the job website Glassdoor this week. And it wasn’t just truckers. Among the top 10 with the biggest pay increases: baristas (also up 5.7 percent), bank tellers (4.9 percent), cooks (4.7 percent), and cashiers (3.7 percent).

The biggest losers? Lawyers, whose average pay was $92,000, saw a 3 percent decline, because too many law school graduates were chasing too few jobs.

The legal profession is an exception in today’s labor market. In most job categories, there’s a shortage of workers, which is driving up wages. Seven in 10 construction companies report they’re having trouble finding craft workers, especially carpenters, bricklayers, electricians, concrete workers, and plumbers, according to a survey released Tuesday by the Associated General Contractors of America. As a result, half of the firms have increased base pay for workers; 20 percent have boosted employee benefits.

When Missouri’s conservative legislature voted earlier this year to overrule cities that had passed their own minimum wage laws, more than 100 St. Louis companies vowed to keep paying the city’s $10 an hour minimum wage, instead of rolling back to the state’s $7.70 per hour minimum.

While the role of minimum wage laws in raising pay is open to debate – one recent study of Seattle’s minimum-wage hikes found they pushed workers’ earnings down because employers cut workers’ hours – most everyone agrees that the economy’s long expansion is finally forcing employers to pay more to attract workers.

Pay hikes and a paradox

Median weekly earnings rose 4.2 percent over the 12 months ending in July, the fastest rise since the prerecession peak of 2007, according to the US Bureau of Labor Statistics. And the actual picture may be even better than that, argues Ms. Daly of the San Francisco Federal Reserve Bank.

That’s because two factors are dragging down the reported averages, according to her research. First, the strong economy is luring back lower-skilled people who were sidelined by the Great Recession. But they’re often entering jobs that pay low wages, which pulls down the average.

It’s a kind of happy paradox: The stronger the economy, the more it pulls in workers who lower the overall wage.

The second factor is what Daly calls the “silver tsunami” – the surge in baby boomer retirement. As this huge cohort of highly paid workers get replaced by lesser-paid Millennials, the average gets pulled down. But from the individual worker’s perspective, pay is typically going up. The growth rate for full-time workers who didn’t get laid off is already back to 2007 levels, she points out.

There are some troubling signs. Workers at the low end of the wage spectrum are only now beginning to recover from the Great Recession. So it will take some time for them to reap the benefits of the recovery.

“There is some improvement,” says Mr. Trumka, the labor leader. “But wages have lagged so far behind over 40 years, it's going to take a lot more than a year or two to get them back to where they need to be.”

‘The new normal will be tight labor market’

Another problem is that the more employers raise wages, the more it cuts into company profits. The only time that doesn’t happen is when their workers become more productive. And growth in labor productivity has been especially sluggish in this recovery. The last seven years have seen the weakest growth of any seven-year period on record, points out Gad Levanon, chief economist for North America at The Conference Board, in a recent analysis.

Lower corporate profits can rattle Wall Street. Higher labor costs without productivity growth can lead to inflation, which often precedes a recession. But those dangers do not appear immediate, according to Mr. Levanon. Corporate profits, while declining, are still above average.

“We are already in a tight labor market, and in the next 15 years baby boomers will continue to retire in large numbers,” he writes. “The new normal will be tight labor market. Workers are likely to get a bigger slice of the pie.”