The employment situation in the USA is puzzling commentators. Wages aren’t rising as expected for such a tight labour market.
The labour force isn’t following the usual script
Historically in the USA, as in other western economies, an unemployment rate this low has been combined with wage inflation. Employers must offer ever higher wages to secure the staff they need when empty jobs outnumber workers. Workers may even be able to play potential employers off against each other to secure a better deal.
Traditionally this type of pressure cooker environment is followed by climbing inflation and then subsequently a recession. This time however wages are sticky, and it’s steady as she goes for the American economy.
Wages are climbing – slowly, but pay rises aren’t evenly distributed
Over the year, hourly earnings did increase by 3.4 percent to $27.66, the average for all workers. However, much of the workforce are employed in roles considered “production and non-supervisory” meaning they are not managers or higher level executives. People in these jobs receive and average of just $22.40. The lowest paid of these industries are those working in leisure and hospitality with wages at an average of just $13.64. We can imply those in more senior positions have received a much larger pay bump.
Labour force participation hasn’t changed either
Such a sustained period would normally be expected to grow the labour force, as people who previously weren’t inclined to work either took up jobs or began actively looking for one. Yet labour force participation remained steady at 63.2 percent. Within this, for those aged 25 – 54 years old the participation rate is unusually low. These are usually the prime working years.
Theoretically when the economy is at or near full employment, as the numbers tend to suggest for the USA, anyone who wants to work already is. And sure enough, new entrants to the job market represented the smallest proportion of those unemployed.
So who wants to work?
Maybe that’s the rub. Despite the availability of jobs, for many they are not appealing. Without a queue of keen applicants at the factory door, there’s no upwards pressure on wages. With low wages, reductions in conditions, and the lack of benefits available to those without a higher education, people may be deciding that work just isn’t worth it. This does raise the question of what these people are living on, given welfare in the USA is much more restricted than in New Zealand.
Or is it (a lack of) bargaining power?
The entire premise of the low unemployment = wage rises expectation is that workers have increased bargaining power in a time when their labour is in demand. Usually if the boss can’t afford to lose you, because you’re hard to replace, you can demand more pay, benefits, and better conditions.
It may be that many workers, and particularly those at the lower end of the skill scale, have a feeling that their employment is precarious. If there’s a chance your job is insecure then you won’t be making demands.
There’s a new theory in town: the “Amazon Effect”
We’ve seen the retail landscape change rapidly over the past few years, as more and more sales move online and traditional shops close their doors. Customer access to products, information, and convenience has never been higher, but it has left a whole section of the economy in its wake.
Low skilled jobs have been shrinking due to automation for some time already, but the pace is accelerating with the possibility that fast food workers and other more varied but repetitive tasks may be next.
All of this adds up to a workforce who could be scared to rock the boat by asking for an improvement to their situation. The GFC taught all of us just how quickly a boom can go belly up, and it may be that although growth remains positive, we’re all tiptoeing lest we wake the demon recession.