Wages aren’t growing so slowly, after all.
A new study by the Federal Reserve Bank of San Francisco found growth in the median weekly pay of workers continuously employed in full-time jobs picked up sharply in 2015 to nearly 4% on an annual basis.
By contrast, the 12-month rise in average hourly earnings reported by the Labor Department has hovered around 2% for most of the nearly seven-year-old recovery. Annual wage growth accelerated to 2.5% in January but slipped back to 2.2% last month.
The report blames the sluggish aggregate gains on changes in the makeup of the labor force, particularly the entry of low-wage workers as the recovery gained steam and the retirement of higher-paid baby boomers.
“While high-wage baby boomers have been retiring, lower wage workers sidelined during the recession have been taking new full-time jobs,” study authors Mary Daly, Bart Hoblin and Benjamin Pyle wrote.
USA Today reported similar findings last fall based on data from payroll processor ADP, but this marks the first formal report of the trend by a government agency.
The tepid overall pay increases have puzzled economists because the sharp drop in unemployment to 4.9% from 10% in 2009 should have led to faster pay hikes as employers competed for a shrinking pool of available workers. From 1983 to 2015, the study notes, yearly wage gains averaged 3 ¼%. With monthly job growth averaging well over 200,000 the past couple of years, the failure of worker paychecks to swell more rapidly has been considered the chief missing element of the labor market’s recovery.
The report separated the median weekly wage growth of full-time workers who stayed employed from changes in earnings due to movements into and out of the labor force. The median pay gains of the full-time workers spiked from about 2% in 2010 to 4% in 2012, then edged down to about 3% in 2014 before gradually rising to nearly 4% by the end of 2015, the study shows.
By contrast, many other Americans enter or exit the labor force each month. Those outside the labor force — including many in school as well as laid-off workers who stopped looking because they grew discouraged — have returned in greater numbers as the labor market has improved. About 80% of those new full-time employees started “at below-median wages,” the study says.
Similarly, the number of part-time workers switching to full-time jobs has increased as well, with about 80% doing so at below-median wages.
At the same, several million Baby Boomers have been retiring each year. The departure of those older, higher-paid workers also has held down wage growth.
During the recession, the study says, the opposite dynamic occurred. Employers fired low-wage workers first and kept those with higher skills and earnings, tempering the decline in average wages.
The study concludes that the impact of its wage-growth findings on inflation are unclear. Even though raises have been more robust than believed, employers’ ability to keep their overall wage bills low “by replacing or expanding staff with lower paid workers” still could keep a lid on inflation. The Fed, which raised its benchmark interest rate for the first time in nine years, is looking for inflation to pick up to move ahead with further hikes.
Written by Paul Davidson of USA Today
(Source: USA Today)