The economy is growing, hiring is picking up steadily and falling energy prices mean more cash in the wallet. Yet one key measure of economic well-being remains stubbornly in neutral: the wages of Americans.
The plight of the paycheck is about to take center stage in the national political debate, from President Barack Obama’s State of the Union pitch for “middle-class economics” to signs that the campaign for the Republican presidential nomination will key on GOP solutions to a gap between rich and poor that widened on Obama’s watch.
In normal times, strong hiring like that seen in 2014 translates into a tighter labor market, one where workers can demand higher pay. But even with almost 3 million new jobs last year, the best showing since the late 1990s, wages are just keeping pace with inflation.
Average hourly earnings were 1.7 percent higher in 2014 than they were a year before, and in December, hourly earnings ticked down two-tenths of a percentage point.
By comparison, in 1999 the unemployment rate hit 4 percent in December. That year, average hourly earnings rose by 3.7 percent and average weekly earnings rose by 3.4 percent. By April 2000, average weekly wages rose by 4.4 percent compared with a year before.
Today, any additional income that ordinary Americans have earned is being offset by rising prices. It means Americans are treading water.
A McClatchy analysis of Labor Department data shows that workers with bachelor’s or advanced degrees actually lost ground on earnings last year.
The midpoint of usual weekly earnings for workers 25 or older with bachelor’s degrees fell to $1,101 from $1,108 in 2013. For advanced degrees, midpoint usual weekly earnings fell to $1,386 in 2014 from $1,389 a year prior. Workers with only high school degrees saw their midpoint weekly wages rise to $668 last year from $651 in 2013.
One explanation for stagnant wages is there’s less pressure on employers to raise wages regardless of skill level because many people who exited the workforce during the Great Recession still haven’t come back.
“We’re still missing millions of workers in the economy. Workers know it. Employers know it,” said Elise Gould, senior economist at the Economic Policy Institute, a liberal research group that coined the phrase “missing workers” to refer to Americans who’ve yet to return to the workforce.
“As the economy grows stronger, those potential workers will start to come back in,” she said. “That’s partly why we haven’t seen any movement on wage growth yet.”
By Gould’s count, there were 6.1 million “missing workers” as of December, who either remained out of the workforce or had looked for jobs in the past year but not in the past month – the definition of discouraged workers.
December’s unemployment rate of 5.6 percent would be slightly over 9 percent if you added discouraged workers, those who’ve left the workforce altogether and the officially unemployed, a term that requires them to be seeking work in the past four weeks.
What can be done?
The most important factor is simply more economic growth. That would fuel hiring, pull more of the missing workers back into the labor force and eventually give all workers better standing to seek wage increases.
“As the labor market continues to tighten . . . I think that will translate into more decent wage growth,” said Gould.
One solution proposed by the White House and congressional Democrats is raising the minimum wage.
“The No. 1 economic crisis facing America’s workers is the wage crisis, and we will not effectively address it until we take bold and meaningful steps to raise the minimum wage to a level that . . . ensures that workers at the bottom of the wage scale can live at least as well in 2015 as they did in 1968,” said Christine Owens, head of the advocacy group National Employment Law Project.
Despite jobs gains, middle class wages falter
While median hourly wages for the middle class continued to rise, recent growth has been slower than previous years. In fact, average wages for middle class workers fell 2.5 percent between the third and fourth quarter in 2014.
A number of states passed referendums or ballot measures in November to raise their minimum wages, and 29 states and the District of Columbia now have minimums that exceed the national minimum, which has been at $7.25 an hour since 2009.
There’s little evidence that the Republican-controlled Congress is any mood to raise the national minimum wage, leaving it to states to do as they see fit.
Another solution might come as early as February, when the Labor Department unveils its plan for updating a rule, last changed in 2004, that affects which salaried workers qualify for overtime, sometimes called time-and-a-half pay.
Hourly workers are afforded this overtime pay, and the administration is weighing whether to raise the salary threshold under which workers on weekly pay are entitled to overtime.
Proponents want this number raised to $51,000, although the administration has long been thought to be in the ballpark of $42,000. Never indexed for inflation, the threshold is now at $23,660. This executive action might eventually improve pay for millions.
“Looking at total compensation, the picture looks a bit brighter for workers,” said Perry, a visiting scholar at the conservative American Enterprise Institute, a research center in Washington.
Fringe benefits for workers – which include health care, retirement accounts, sick pay, family leave and the like – have grown 29 percent over the past 10 years. That tops the wage growth of 25 percent over the same period, which has just kept pace with inflation.
It also may help explain why employers have been reluctant to raise wages.
“Even though monetary wages have been very stagnant . . . employer costs have gone up more than wages have,” said Perry.