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Wage Growth Is Unequal in This Economy — But Not in the Way We’ve Come to Expect

Photo: Robert Alexander/Getty Images

Although last month’s jobs report produced a disappointing estimate of hourly wage growth — the average worker earned 2.9 percent more per hour than a year earlier, down from 3.1 percent a month earlier and less than you’d expect at such a strong point in the economic cycle — a frequently noted silver lining is that wages are growing fastest for the workers who need the money most.

“A stronger labor market gives lower-wage workers some of the bargaining power that high-wage workers have at all times,” says Nick Bunker, an economist at Indeed, the job search-engine company.

After more than a decade of lagging the broader economy, wages in low-wage industries — those that tend to rely on low-skilled workers, such as retail, food service, and nursing homes — are now rising at 4.5 percent a year, according to an analysis of Bureau of Labor Statistics data conducted by Indeed economists. Wage growth in low-wage industries took off in early 2018 and has been much faster than in the rest of the economy ever since. In addition to low-wage workers’ greater susceptibility to the swings of the labor market, Bunker noted that state and local minimum-wage increases have helped push up earnings in low-wage sectors.

In middle-wage industries, wage growth has stagnated at 3 percent, while wage growth in high-wage industries has actually been declining and was just 2.4 percent as of November, the most recent month for which industry-by-industry data is available. Within sectors, you can also see that wage growth is strongest at the bottom, in that wages for production and nonsupervisory workers tend to be rising faster than wages for managers. (Even for workers who are not paid by the hour, the Bureau of Labor Statistics calculates wages in the form of “hourly earnings,” which is weekly earnings divided by hours worked.)

What’s behind the relative wage-growth weakness for workers higher up the income scale? For one thing, the middle-wage group of industries disproportionately includes manufacturing and other goods-production industries that have been disproportionately affected by global economic difficulties and trade wars. Employment growth has been lagging in these sectors along with wage growth.

For workers in high-wage industries, the reason for low and declining wage growth is less clear. Some high-wage industries with slow wage growth — such as transportation equipment, chemicals, and semiconductors and electronic components — are goods producing and face the same global trading pressures as many middle-wage industries. But overall, hiring in high-wage industries remains relatively robust on average even as wages rise slowly, which suggests it’s not an issue of overall economic distress.

In some cases, slow wage growth in high-wage industries may be due to sector-specific circumstances. Increasingly, successful corporate and government efforts to contain health-care-cost growth may be flowing through as smaller wage increases to doctors and other workers in high-wage health-care industries: Workers in physicians’ offices saw hourly earnings rise just 0.4 percent, lagging inflation; hourly earnings at outpatient care centers actually fell. And after robust growth in 2018, hourly earnings were flat in 2019 in the industry that includes stockbrokers and investment managers. That could be due to limited growth in bonus compensation — a trend that could change as bonuses get paid out in 2020 based on excellent investing returns in 2019.

Broadly, a trend of slower wage growth in high-wage service industries than in low-wage ones is good for reducing inequality. People up and down the income scale pay for the services of medical and financial professionals, even if indirectly. But there is a separate issue of the share of economic output accruing as wages to workers (including high-wage workers like doctors) rather than to owners of capital as profits. As the labor market continues to get tighter, the share of output that goes to workers should rise in the form of stronger wage increases up and down the income scale. If that wage growth materializes — if the Federal Reserve allows it to materialize, as Fed officials are trying to signal they will, instead of raising interest rates prematurely — then we won’t have so many caveats about which parts of the workforce the labor market is working for now.

Wage Growth Is Unequal — But Not in Way We’ve Come to Expect