Wage growth carries on while economy recovers from crash
When millions of workers were getting layoff notices last spring, Sharon McCown got something different: a raise.
Target, where McCown was earning $13 an hour stocking shelves and helping customers, gave front-line workers an extra $2 an hour in hazard pay in the early months of the pandemic. The company later raised starting pay permanently to $15 an hour and paid out a series of bonuses to hourly employees.
The extra pay, combined with relief checks from the federal government and the forced savings that came with pandemic life, means McCown, who is 62 and lives in Louisville, Kentucky, will emerge from the pandemic in better financial shape than she was in before it.
“I did save quite a bit of money given that I wasn’t doing as I usually
do, going out to movies, going out to dinner,” she said. “I would look at my bank account, and I was really happy with it.”
Workers in retail, hospitality and other service industries bore the brunt of last year’s mass layoffs. But unlike low-wage workers in past recessions, whose earnings power eroded, many of those who held onto their jobs saw their wages rise even during the worst months of the pandemic.
Now as the economy bounces back and employers need to find staff, workers have the kind of leverage that is more typical of a prolonged boom than the aftermath of a devastating recession. Average earnings for nonmanagers in leisure and hospitality hit $15 an hour in February for the first time on record; in April, they rose to $15.70, a more than 4.5% raise in just two months.
President Joe Biden’s administration is embracing those gains and hoping they shift power away from employers and back toward workers. And Federal Reserve officials have indicated that they would like to see employment and pay rising because those would be signs that they were making progress toward their goals of full employment and stable prices. The stage is set for an economic experiment, one that tests whether the economy can lift laborers steadily without igniting much-faster price increases that eat away at the gains.
“Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract workers,” Biden said in Cleveland recently. “When American workers have more money to spend, American businesses benefit. We all benefit.”
Data on pay gains has been hard to interpret because state and local lockdowns tossed people who earn relatively little out of work, causing average hourly earnings to artificially pop last spring. But when you look across a variety of measures, wages seem to be growing at close to pre-pandemic levels.
That came as a surprise to economists.
Earnings growth typically slows sharply when unemployment is high, which it has been for the past 14 months. Many economists thought that would happen this time around, too.
Instead, paychecks seem to have been resilient to the enormous shock brought on by the pandemic: Wage growth wiggled or fell early on but has been gradually climbing for months now.
“It’s not necessarily going gangbusters, but it’s just higher than you would think” when so many Americans are out of work, said John Robertson, an economist who runs the Federal Reserve Bank of Atlanta’s widely used wage growth tracker. Payrolls are still down by 8.2 million jobs, although that number could fall when fresh data is released.
Even workers with less formal education, who have experienced the worst job losses and still face high unemployment rates, have seen pay accelerate this year as economies reopen and employers struggle to hire. That is according to the Atlanta Fed gauge, which is calculated in a way that makes it less susceptible to at least some of the composition issues plaguing other wage measures.
A separate, quarterly measure of overall compensation costs also has held up.
The data, though messy, matches anecdotes. Reports of labor shortages in service jobs that are newly reopening abound, and surveys show businesses and consumers becoming more confident that employee earnings will increase. Job openings have been surging, and the rate at which workers are quitting suggests that they have some room to be choosy.
Many employers, particularly in hospitality, have blamed generous unemployment benefits — now set at an extra $300 per week — for encouraging workers to stay home and making it harder for them to hire. More than 20 states, all led by Republican governors, have moved to cut off pandemic unemployment programs before their scheduled September end date.
Republicans have warned that as employers lift pay to attract scarce workers, they may be forced out of business or pass along added labor costs in the form of higher prices. That could turn an inflation surge now underway as the economy reopens into one that is longer-lasting.
But Democrats and many at the Fed think the risk of a persistent and rapid acceleration in prices is smaller, and many of them are embracing the apparent increase in pay and benefits as a longawaited opportunity.
The financial cushion of unemployment benefits and repeated rounds of relief checks from the federal government has given many lowwage workers more leverage with potential employers. That is after decades of steady declines in workers’ share of the nation’s overall income.
“You’re giving those frontline workers a little more bargaining power because they’re not as financially strapped and they can make some choices,” said Julia Coronado, president of MacroPolicy Perspectives, an economic consulting company.