The shift for low-income workers—including restaurant workers and retail cashiers—who make about $10.75 an hour, is a sign that a tightening labor market is delivering better pay to workers who largely haven’t shared in gains since the recession ended eight years ago, according to economists and government data. Last quarter marked the first time since late 2010 that this earning group’s gains outpaced all others, including the 90th, 75th, 50th and 25th percentiles.
PHOTO: GREG SORBER/ZUMA PRESS
Rising minimum wages in many states is one factor. [Isn’t it interesting that WSJ has been constantly warning us that adopting the minimum wage would drastically diminish employment. Where is that prediction now?]
Usual weekly earnings for workers ages 25 and older at the bottom of the pay scale rose 3.4% from a year earlier in the second quarter, according to analysis of newly released Labor Department data. That was stronger than the median gain of 3.2% and the 3.1% improvement for workers at the 90th percentile, who earn more than 9 in 10 other Americans. The percentage increases are based on a four-quarter average of earnings, to smooth out volatility in the data.
Throughout much of the economic expansion that began in mid-2009, wage gains for the lowest-earning Americans trailed behind median wage gains and those of the highest earners. The annual raise for the lowest earners was below 1% annually during 2015, less than half as strong as the median gain.
The recent improvement for low earners coincides with a downward trend in the U.S. unemployment rate, which stood at 4.4% last month, versus 4.9% a year earlier. The unemployment rate for those with less than a high-school education—who make up much of the low-wage workforce—fell even more sharply, to 6.4% last month from 7.5% a year earlier. Tighter labor supply in theory should push up wages.
Wages have been rising swiftly in fields such as restaurants, amusements and gambling, said Jed Kolko, economist at job-search site Indeed. That is an indication that employers need to pay more to attract workers into those fields.
“In a strengthened economy, people spend more on entertainment and eating out, raising demand for workers in those fields,” he said. Those wage gains also at least partially reflect rising minimum wages, which have increased in 21 states this year.
Usual weekly earnings is a different wage measure than the more broadly cited average hourly earnings figure reported in the jobs report each month. The quarterly figure incorporates overtime pay, commissions and tips that might not be captured in the hourly figure.
Still, higher-earning Americans have fared much better during the expansion. Pay for workers in the 90th percentile has increased nearly 20% since mid-2009. Pay for the 10th percentile worker rose 12.5%, not enough to offset inflation.
“We’re starting to see wage pressure at the two ends—the high-skilled end and the low-skilled end,” Philadelphia Federal Reserve President Patrick Harker said in an interview this month. “Where the squeeze is still happening is the middle-skill jobs.”
He said that could partially reflect new technologies emerging to supplant better-paid workers. For example, he said, sophisticated document-reading software is reducing law firms’ need for armies of young associates to do the task.
Since the recession ended, employment in legal services rose less than 1%. Employment at restaurants and bars is up 24%. [What a relief!]
Last year, the Wireless Zone, a chain of cellphone stores, raised base pay for workers at its company-owned locations to about $18 an hour, but cut back the bonus incentives it offered. As a result, the lowest-paid workers earn more, shrinking the gap between high and low earners. Average pay is little changed, said Dave Staszewski, executive vice president of the Rocky Hill, Conn.-based franchise. He said the change in pay structure was designed to attract scarce workers.
He said the strategy has been effective in attracting workers as these job seekers put a bigger emphasis on guaranteed salary rather than potential bonuses.
However, some low-paid workers say the raises are still too small to make a difference. LaShawnda Obie, a Wendy’s worker from Detroit, received a 40-cent increase to $8.90 an hour in January, when Michigan’s minimum wage increased. That is a 4.7% raise—but she said it isn’t enough to support herself and two daughters.
“I still have to sacrifice,” the 28-year-old said. “My kids need underwear and clothes, but I have to push that aside so I can pay rent.”
A Wendy’s Co. spokeswoman said Thursday that wages for individual employees are set by the chain’s franchise operators.
In a May call with investors, Wendy’s Chief Financial Officer Gunther Plosch said the company is “pulling all levers that we can” to overcome an expected 4% increase in labor costs this year.
The chain aims to increase sales to offset rising costs and is “investing in technology on the front end of the house behind mobile ordering and the rollout in kiosks” to reduce the need [for] workers, he said.
Technology can make existing workers more productive, which often coincides with wage increases, but in the longer run it can also eliminate jobs.