US job market's lingering weak spot: Stagnant pay
Steve Debenport | iStock | 360 | Getty Images
Economists are flummoxed by the way the historical relationship between pay and unemployment has eroded since the recession ended. Based on historical trends, the steady drop in unemployment should have raised inflation-adjusted wages by 3.6 percent by June, according to researchers at the Federal Reserve Bank of Chicago. That's because employers have had to fill jobs from a smaller pool of unemployed people- a trend that normally forces them to pay more.
Instead, overa ll inflation-adjusted wages have essentially flattened since 2009.
That said, workers in some industries have fared better. For those in a category that includes data processing and analytics, as well as broadcasting, film and publishing, hourly wages have surged 4.6 percent in the past year. And pay is up at least 3 percent for financial services workers and wholesalers.
By contrast, wages are up just 1.3 percent for employees in education and health care.
So why has overall wage growth been so weak? Economists point to several factors.
Read More Wages andinflation: Things could get complicated
The biggest is that there are still too many people desperate for work than is typical for a healthy economy. That makes it easier for employers to fill jobs without raising pay.
There are 227,000 fewer people with jobs than in November 2007, just before the recession began. Yet the working-age population is up 15.3 million since then. That's kept the number of unemployed elevated: 9.6 million Americans, up from 7.6 million when the recession began.
But it's not just unemployment that's holding down wages. The many part-timers who would prefer full-time work are also competing with those who are out of work. There are 7.2 million involuntary part-timers, up from just 4.6 million in late 2007.
Half the economists surveyed by newsandtalking.blogspot.com last month cited the high number of people without full-time jobs as the main reason wage growth has been weak.
The Chicago Fed estimates that if all measures of unemployment, including involuntary part-timers, had returned to pre-recession levels, paychecks after inflation would now be rising up to 1 percentage point faster.
Given these trends, people who do have jobs have less leverage to demand higher pay. Sixteen percent of working Americans say their pay hasn't budged in the past year, up from 11 percent before the recession, according to research by Bank of America/Merrill Lynch.
In a healthier economy, more people would seek higher pay elsewhere and quit their jobs once they found it. But the number who quit their jobs tumbled during the recession and has only partly recovered.
In addition, fewer startup companies are being created, holding back hiring. In the final quarter of 2013, new companies created just 1.3 million jobs, down from an average of 1.75 million in the 1990s, according to government data.
Fewer startups and fewer quits have reduced what's called job-market 'churn.' Economists liken churn to musical chairs: When people quit or new jobs are created by startups, more positions open for the unemployed or for workers seeking higher pay.
But churn has declined by up to one-third since the early 1990s, according to research by economists Steven Davis and John Haltiwanger.
Typically, wages also rise in line with increased productivity. Productivity measures output per hour of work, and higher productivity enables companies to pay more without sparking inflation. Yet productivity has been unusually sluggish the past three years.
Post a Comment for "US job market's lingering weak spot: Stagnant pay"