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Wages finally going up, just not for middle class

Proverbial tide has not lifted all boats

By Don Lee, Tribune Washington Bureau
Published: February 27, 2018, 6:00am

WASHINGTON — Jorge Hunzelmann was pleased enough when his employer bumped up his pay this year by $2.50 an hour to $19.50.

Hunzelmann, a truck driver, is a beneficiary of a tightening labor market. But he does not have company-provided health benefits, and thankful as he was for the raise, the 52-year-old father of two says it’s still a hand-to-mouth existence for his family.

“We don’t have money to save to put into the bank. Everything is gone,” said the resident of Gaithersburg, Md.

Across the country, wages that were stuck for years finally seem to have started to rise faster, especially in industries such as trucking, which is begging for workers.

Average hourly earnings for all private-sector employees last month grew at a 2.9 percent annual rate of increase, the most since 2009. That has fueled hopes for workers. It has also raised fears of higher inflation and interest rates.

But wage gains thus far have been very uneven, according to Labor Department statistics. They’re concentrated at the both ends of the pay scale — well-paid executives at one end, lower-paid workers like Hunzelmann at the other.

By and large, the broad middle of the labor force has not seen much of a raise, mirroring a long-running trend of income polarization and a shrinking middle class in America.

Even with unemployment at a 17-year low of 4.1 percent, the proverbial rising tide has not lifted all boats: The fancy yachts have gotten most of the lift.

Take the finance sector, which has led the pack in the recent wage increases.

About 8.5 million people work in banking, insurance and real estate; their average hourly pay jumped 4.2 percent in January from a year earlier, to just a penny under $34 an hour.

But for ordinary nonsupervisory employees in finance — about four out of five financial-industry workers — the average increase was just 1.6 percent, to $26.75 an hour.

A similar, though smaller, gap can be seen in other industries, including health care, retail trade, information and professional services such as computer systems designs.

“It’s a pulling apart at the top,” said Elise Gould, a senior economist at the Economic Policy Institute, a liberal-oriented group, noting that if the latest trend continues, it will exacerbate the country’s already large income inequality.

The Republican tax law that passed in December is expected to stimulate economic growth, and Trump administration officials say that will lead to broad-based wage gains as companies will have more cash to give to their workers.

Many economists, however, doubt that the $1.5 trillion tax law will be a windfall for most workers. History and recent surveys suggest that companies are more likely to use most of the tax savings to buy back shares, reward stockholders and make acquisitions.

Stronger economic growth is likely to push the unemployment rate down further. Already unemployment has fallen to a level that in the past has generated wage gains of around 3.5 percent to 4 percent.

Some analysts think wage increases are on the cusp of moving up to that range again. After several years of spending a constant 3 percent more for salaries, U.S. companies now appear to be budgeting a little more for pay, said Sue Holloway, a director at WorldatWork, a nonprofit group that studies compensation and benefit trends.

“We’re at a point now where the labor market is heating up,” she said.

Wage gains at the bottom of the pay scale could, eventually, put upward pressure on pay in the middle. But a number of factors could restrain pay gains, at least for most workers: sluggish productivity growth; a shift to giving bonuses as opposed to raises; continued outsourcing of business services; and what appears to be a more concentrated labor market in certain regions and industries that gives companies greater bargaining power.

“I sometimes wonder whether part of it is, firms got used to not giving raises because we were in a period of a lot of labor market slack for a long time and because the recession was so deep,” said Jay Shambaugh, a senior fellow at the Brookings Institution and economics professor at George Washington University.

“You occasionally see the anecdote where someone says, ‘I’ve been hiring roofers at $17 an hour for the last 10 years, and all of a sudden I can’t find workers.’ And you think, paying literally the same wage for 10 years … it should be going up.”

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Another legacy of the 2007-09 recession is uncertainty about what happened to millions of workers who disappeared from the labor market and have yet to return.

Labor slack

Although the official unemployment rate would suggest that the nation is at full employment — and there are pockets of that in the country — there could be a lot more labor slack in the economy if many workers who dropped out want to get back into the labor force now. In that case, employers would feel less pressure to raise pay.

Lenny Arnold, 52, lives near Dayton, Ohio. In December 2015, he was laid off from his $26-an-hour union job making pumps for a manufacturer in nearby Springfield.

For the next two years, Arnold was neither working nor looking for work and thus not counted as unemployed; he was in a community college getting trained in welding and computer-controlled machining, supported financially by unemployment benefits and government funds for workers who lose their jobs as a result of international trade.

After graduating in December, having made the dean’s list all four semesters, he quickly found work at another pump-making factory close to his home.

But the pay is much lower than he earned before: Arnold started as a temporary worker at $16 per hour, and a month later was converted to regular full-time status earning $17 an hour. “When I walked in, they wanted to give me $11 an hour,” he said of the employer’s lowball offer.

Arnold doubts he’ll ever get back to his old pay rate.

“They’ll just start hiring more temp workers to cover what they need,” he said.

The stronger global economy has spurred demand for American products, and many factories are busier than ever. But many also continue to struggle to fill jobs as baby boomers retire and fewer young adults want to work in factories.

As a result, manufacturing firms are offering signing bonuses and more pay to entice workers. The rate of hourly wage gains for production workers has risen steadily since summer from about 2 percent to 3.3 percent in January, with some of the strongest gains in lower-wage industries such as food processing and garment-making.