Econ­omy has bounced back, but not ev­ery­one is shar­ing the wealth

The Denver Post - - FRONT PAGE - By Christo­pher S. Rugaber

Eight years after the Great Re­ces­sion ended, the econ­omy is steadily churn­ing out jobs, and the un­em­ploy­ment rate is at a 16-year low. Yet for most Amer­i­cans, a key mea­sure of eco­nomic health — pay growth — still lags be­hind pre­re­ces­sion norms. »

Eight years after the Great Re­ces­sion ended, the econ­omy is steadily churn­ing out jobs, and the un­em­ploy­ment rate is at a 16-year low.

Yet for most Amer­i­cans, a key mea­sure of eco­nomic health — pay growth — still lags be­hind pre-re­ces­sion norms.

That isn’t likely to change Fri­day, when the La­bor Depart­ment will re­lease the U.S. jobs re­port for June. Econ­o­mists have fore­cast that em­ploy­ers added a solid 177,000 jobs last month and that the un­em­ploy­ment rate re­mained 4.3 per­cent, the low­est level since 2001. The job mar­ket, in other words, has proved it­self re­silient.

Pay raises are an­other story, and a puz­zling one. An­a­lysts ex­pect Fri­day’s re­port to show that av­er­age hourly wages rose just 2.6 per­cent from a year ear­lier, ac­cord­ing to data provider Fac­tSet. That’s well below the 3 per­cent to 3.5 per­cent av­er­age pay raises that have been typ­i­cal in a healthy econ­omy.

The Fed­eral Re­serve mon­i­tors the barom­e­ters of wage growth for any ev­i­dence that in­fla­tion might be start­ing to pick up. In­fla­tion has re­mained per­sis­tently low since the re­ces­sion ended — lower even than the Fed’s 2 per­cent tar­get rate, which it re­gards as con­sis­tent with a healthy econ­omy.

Here are five rea­sons why pay growth has lagged chron­i­cally be­hind job growth for most of the re­cov­ery from the re­ces­sion:

Gen­er­a­tional pay gap

One drag on av­er­age salaries is de­mo­graphic: Higher-paid baby boomers are re­tir­ing in droves, and in many cases they’re be­ing re­placed by lower-paid younger work­ers. Roughly 10,000 Amer­i­cans turn 65 ev­ery day. And while not all re­tire, most do.

For younger work­ers, es­pe­cially those who lack ad­vanced ed­u­ca­tion, in­comes have de­clined over the past four decades. A typ­i­cal Amer­i­can in the 25-to-34 age range earned $34,800 in 2016, ac­cord­ing to the Cen­sus Bu­reau. Once you ad­just for in­fla­tion, that’s less than in 1975, when the typ­i­cal worker in that age group earned $36,900.

Cau­tious em­ploy­ees

Ask­ing for a raise is never easy. It’s even harder when mem­o­ries re­main fresh of a time when nearly 9 mil­lion people were thrown out of work and the un­em­ploy­ment rate rock­eted to 10 per­cent, as hap­pened dur­ing and after the 2008-2009 Great Re­ces­sion. Even now, some people re­main re­luc­tant to ap­proach their boss and ask to be paid more.

One mea­sure of this trend is the Con­fer­ence Board’s con­sumer con­fi­dence sur­vey. The sur­vey asks people whether they ex­pect their in­come to in­crease within six months. The more likely they are to ex­pect a pay gain, the more likely they are to ask for a raise if they haven’t re­ceived one.

Un­til 2014, more Amer­i­cans ac­tu­ally ex­pected their in­comes to fall rather than rise. And the pro­por­tion of Amer­i­cans who ex­pected a raise didn’t reach pre-re­ces­sion lev­els un­til late last year.

“People are out of prac­tice when it comes to ask­ing for higher pay,” said Mark Zandi, chief econ­o­mist at Moody’s An­a­lyt­ics.

Wages got stuck

Even as they slashed jobs dur­ing the re­ces­sion, em­ploy­ers gen­er­ally re­frained from cut­ting pay for the re­main­ing work­ers. Econ­o­mists say that isn’t sur­pris­ing: Em­ploy­ers tend not to cut pay for work­ers who sur­vive a round of lay­offs to avoid fur­ther de­mor­al­iz­ing a staff.

But that doesn’t mean em­ploy­ers didn’t want to lower pay dur­ing the re­ces­sion, given their fall­ing rev­enue and prof­its. So to off­set the cost of leav­ing wages un­touched, many em­ploy­ers have with­held raises as the econ­omy has im­proved. Econ­o­mists at Bank of Amer­ica Mer­rill Lynch have cal­cu­lated that the share of work­ers whose wages didn’t budge — up or down — rose sharply dur­ing the re­ces­sion and still hasn’t re­turned to healthy lev­els.

Down the pay scale

The re­ces­sion not only sent un­em­ploy­ment soar­ing. It also in­flicted pain on other people who weren’t tech­ni­cally un­em­ployed. One gauge mea­sures the pro­por­tion of part-time work­ers who would pre­fer full­time jobs — a cat­e­gory that soared dur­ing the re­ces­sion. An­other barom­e­ter counts people who have given up their job hunts and so are no longer counted as un­em­ployed.

Mil­lions of those Amer­i­cans have gained full-time jobs in the past eight years, but in many cases at much lower pay. The Fed­eral Re­serve Bank of San Fran­cisco cal­cu­lated last year that 80 per­cent of those for­merly part­time work­ers who ob­tained full­time jobs did so at wages below the na­tional me­dian level of pay.

And people who are un­em­ployed or who have stopped look­ing al­to­gether are typ­i­cally hired at wages about 30 per­cent below the me­dian pay, re­search has found.

A mat­ter of time

Many econ­o­mists still ex­pect wage growth to pick up in the com­ing months. They ar­gue that a ba­sic rule of eco­nom­ics still holds: As the sup­ply of work­ers falls, its price (i.e., pay­checks) will rise — even­tu­ally.

“It just takes time,” Zandi said. “A tight la­bor mar­ket will lead to greater wage growth.”

With un­em­ploy­ment at an un­com­monly low 4.3 per­cent, many em­ploy­ers have com­plained that they can’t find enough qual­i­fied work­ers. There are more than 6 mil­lion avail­able jobs — dou­ble the num­ber dur­ing the re­ces­sion and a record high.

At some point, all those trends should com­pel busi­nesses to of­fer higher pay, econ­o­mists say.

But many work­ers may not be­lieve it un­til they see it.

Alan Diaz, As­so­ci­ated Press file

Con­struc­tion work­ers build a high-rise apart­ment build­ing in Mi­ami in May. The Com­merce Depart­ment will re­lease the U.S. jobs re­port for June on Fri­day. Un­em­ploy­ment is at its low­est level since 2001.

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